DMP: Important debt management plan questions answered

We investigate some of the important questions that you need to answer before deciding to start a debt management plan.

Before starting a DMP (Debt Management Plan), you must make sure that you fully understand how this debt management solution works and how it will affect you.

To help you find out more about the DMP debt solution we have provided answers to some of the most commonly asked questions.  

1. What debts can be included in a DMP?

A debt management plan is used to deal with unsecured debts. This includes all your consumer banking debts such as bank loans, overdrafts, credit cards and catalogues. You can even include payday loans in a debt management plan.

If you are self employed you may also owe money to some of your suppliers. You can include these debts in your DMP solution. However you must understand that the supplier may then refuse to deal with you in the future or only deal with you on a cash basis. 

Debts that cannot be included in a DMP are secured debts such as your mortgage or a car HP agreement. If you are struggling with these kinds of debts it is important that you get advice as soon as possible from an expert debt advisor. 

In addition to secured debts you will not generally be able to include HMRC debts such as tax or VAT arrears in a DMP. If you have these types of debts you might be better considering an alternative debt management solution such as an IVA.

2. Can I change DMP companies?

If you are already in a debt management plan but you are unhappy with the service being provided by your current debt management company there is nothing to stop you changing to a new company at any time or simply starting to manage your DMP debt solution yourself.

Generally speaking you will not have to give any notice to your current DMP company if you want to stop using them. You simply stop making your monthly payment.

It would be very unusual for the company you have been using to ask for any notice that you want to stop using them and you should certainly not have to pay them any further fee to change. However as a courtesy it is always good to let them know that you plan to change. 

3. What happens to my bank account in a DMP?

What happens to your bank account will very much depend on whether you owe money to your bank or not.

If you do not owe your bank any money then there is no reason why you should not continue to use your bank account while you are in your DMP.

However, if you do owe your bank money, it is likely that you will need to change your account. The reason for this is to protect any money you pay into your account against the bank’s right of offset.

The right of offset means that the bank can take money from your account without your authority to pay off other debts (such as a credit card or loan) that you owe the same bank. The only way to stop this happening is to stop using your current account and start using another one elsewhere. 

Opening a new bank account is relatively easy and should always be done before you start your debt management plan.

4. How much will a DMP cost?

The cost of a debt management plans will vary depending on the type of DMP service you chose. If you wish, there is nothing to stop you negotiating a debt management plan solution with your creditors yourself. This will of course cost you nothing but your time.

There are one or two organisations who will implement and management a debt management plan for you for free. Using one of these can be a good idea especially if you are not able to pay very much each month. However the free providers are funded by the creditors themselves and therefore there is always a question who’s interests they are really looking out for – yours or your creditors?

The alternative chosen by many people is to use a fee charging debt management company. A fee charging DMP company will normally charge an initial instruction fee of the first one or two monthly payments that you make. They will then charge a monthly management fee of around 15% of your monthly payment.

5. What happens to joint debts in a DMP?

If any of your debts are in joint names with someone else it is very important that you understand how these will be affected if you start a debt management plan.

If a debt is in joint names, then both parties are jointly liable for the repayment of 100 percent of the outstanding balance. This mean if one person is unable to pay, then the other is still liable to pay the total debt.

As such if you include a joint debt in your DMP solution, the person you owe money can and probably will still chase the other account holder for payment.

For this reason it is important that the other account holder understands they are still liable to pay the debt if you start a DMP and plans how they will do this once you have started your DMP. Ultimately this may mean that they also need to start a debt management plan of their own.

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