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DMP Guide

The trouble with high finance is that it hides its secrets in obscure and confusing language, often making simple matters unnecessarily complex. This is an attempt to keep everything about a Debt Management Plan, a DMP as it is known, short, sweet and simple. You may not like all aspects of DMPs but given that in the UK and Ireland it is the process which is probably most widely used by ordinary people who are struggling to pay their debts as they fall due, it is worth while getting to know its ins and outs.

Debt Management is a simple way of reducing and clearing all your outstanding personal debts without obtaining any more credit than you currently have. You can prepare a Debt Management Plan yourself or you can use the services of a Debt Management Company to help you. If you do it yourself, you will be contacting and dealing with all of your creditors and you will be asking them to accept lower repayments on each of your accounts than you had originally agreed with them. You will be asking them to drop any charges for late payments and to freeze interest on your accounts. You will try to treat all of your creditors fairly and in the same way in your negotiations with them. Alternatively, you can engage a Debt Management Company to do all this negotiation on your behalf.

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The good thing about Debt Management is that it is an informal and flexible arrangement which is designed to suit your circumstances and needs and the payments you make are tailor made in line with what you can realistically afford to pay. What you pay each month, usually by standing order, depends on your income, your expenditure and your personal circumstances and is calculated to suit your individual needs and those of your family and dependents. While you do not need to be employed to enter into a DMP, you do need a source of income that is more than you require for your living expenses. In a DMP you do not have to release equity from your property, unless you want to, of course. In time, you will repay all of your debts. As well as that, banks and any other creditors you may have usually prefer a Debt Management Plan to any of the other more formal processes for resolving the financial difficulties of their personal customers. What is more, the details of your DMP will not be put on the Insolvency Register as would happen if you were to become bankrupt or enter into an Individual voluntary Arrangement. Indeed, if you are discreet, you can keep the fact that you are in a DMP from your employer, your neighbours and your friends and although it might be difficult for you, you may be able to keep family members from learning about it.

Of course, there are downsides as well to a DMP, the biggest of which is probably the length of time it may take you to complete your DMP. It could take ten years to do so but at the end of the day, all of your debts will be cleared. The second most serious drawback to being in a DMP is that it will affect your credit rating, although it may already be affected if you already have arrears or a history of missed payments or late payments on any of your accounts. Once you or your Debt Management Company negotiates and agrees reduced monthly payments with your creditors, it means that you will no longer be making the payments you originally agreed. It is highly likely that a record of this fact will be made on your personal credit file and these records are retained for six years by the credit reference agencies retain such records for six years.

You should be aware that a DMP does not cover all of your debts. There are certain debts which must be repaid in full as and when they fall due. These are your secured debts such as your mortgage, if you have one or your car HP if it applies to you. These ‘must pay’ debts are sometimes called priority debts. Certain other debts such as rent and council tax must also be treated as priority debts. Definitely covered by your DMP are all of your unsecured debts such as your personal loans, your credit cards and store cards any bank overdrafts you may have. These are the debts where you, or your Debt Management Company, hope to negotiate reduced payments, elimination of charges and freezing of interest with your creditors. There is no guarantee that all of your creditors will agree to accept reduced payments or freeze interest and charges and there is no guarantee that any existing or threatened proceeding will be suspended or withdrawn. Indeed, any debt collection costs incurred by your creditors will normally be added to your debt. Nevertheless, the reputable Debt Management Company will have an excellent track record in negotiating with creditors in regard to all of these matters, in getting your offer of repayment accepted, and in keeping you informed of progress.

If you choose to set up and run your DMP yourself, you can keep costs to a minimum but don’t underestimate the costs of negotiation and correspondence by phone and by mail or indeed of your own time. The fees of Debt Management Companies vary from one to another. Most of them charge a set up fee equal to the debtor’s first monthly payment into the DMP. This means that creditors receive nothing for the first month. Thereafter, charges are usually a fixed percentage of the monthly payment made by the debtor. The average monthly charge is 15% with a minimum of around £25 and a maximum of around £100.

A DMP will not suit everybody particularly if you are insolvent or likely to become insolvent in the foreseeable future and before opting for a DMP, you should be aware of the many alternative courses of action available to people who may be in financial difficulty. The most common alternatives are Bankruptcy, Individual Voluntary Arrangement, Debt Relief Order, Debt Consolidation, Asset Sale & Debt Settlement and Property Remortgage & Debt Settlement. It may even be that financial assistance can be obtained from family or friends on a formal or informal basis.

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