It is estimated that more than 10,000 people undertake a debt management plan (DMP) every month to resolve their personal debt problems. However, if your financial situation is not suited to this type of solution, you could be left wrestling with your debts for many years and perhaps never reach the point where everything is paid off in full. 

A debt management plan or DMP is simply an agreement with your unsecured creditors to reduce the amount you pay them each month to fit within a budget you can afford. Monthly payments are normally reduced below the standard levels required by the creditors.

Unsecured creditors will agree to a debt management plan if they can see that there is simply not enough money to cover all of your reasonable living expenditures plus all of your monthly debt payments each month. Of course, any creditors involved in such an arrangement will make sure that the standard agreements you have with them are then cancelled. This means that you will no longer be able to use the credit facilities (such as credit cards) which are included in the plan.

On the face of it, a debt management plan seems like a very good way of resolving a debt problem. However, this solution may not be right for everybody.

Extended repayment period

The first thing to consider if you are looking at a DMP is how long it will take you to repay your debt once you have started the plan. Clearly, if you are paying less than the minimum required payments each month, it is going to take you longer to repay your debt in full.

To calculate the new repayment period in months, take the total of your unsecured debt included in the debt management plan and divide it by the monthly payment you are going to make. Then divide this figure by 12 to understand the figure in years. If you feel that this period of time is reasonable, then a DMP may be for you. However, you must remember that your creditors may add additional interest and charges to your account throughout the life of your plan so the repayment period could well be extended.
 
Provides a breathing space

If you calculate how long it will take to repay your debt and you are looking at a period of more than 60 months, then you may think twice before proceeding with a debt management plan. However, it could still be sensible to proceed if you only need a temporary breathing space from your creditors.

If you know that your financial situation will improve within a reasonable period of time meaning that you will be able to increase your payments to your creditors once again, then a DMP could be the right solution for you.

Flexible

Another reason why you might consider a debt management plan despite the extended payment period is because it is a flexible arrangement. Unlike a more formal solution such as an individual voluntary arrangement or bankruptcy, you can change your monthly payments either up or down relatively easily. In addition, you have the option of leaving a creditor out of the plan (for example if you want to maintain a credit card agreement) and there is no requirement to release equity from your property if you are a home owner.

There are certainly some circumstances when a debt management plan will be absolutely the right solution to deal with a personal debt problem. However, as with all debt solutions, there are advantages and disadvantages to be considered which will be more or less important depending on your personal financial circumstances. Before entering into such a plan, it is therefore vital to get the proper advice from a debt management expert.