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No interest in a DMP

A Debt Management Plan for short is a course of action to pay back your complete debts but at a slower pace and over a longer time frame than you agreed to do in the first place when you acquired your overdrafts or loans or when you entered into your credit agreements by taking out credit cards. Whenever you present a Debt Management Plan to your creditors you are proposing to pay back your financial obligations to them fully although not precisely in accordance with the original terms and conditions of your credit agreements.

From the viewpoint of your creditors you are basically asking them to agree to alter the terms and conditions of your agreements by paying off less each month and repeating this across a longer time period as you cannot afford to make the complete contractual repayments to all of them as the repayments fall due. You are also saying that you wish to deal with all of them equally by distributing whatever excess income you will have to them on a pro-rata basis. You’re volunteering to do this and you are asking them to allow your decreased payments since that is all you can afford although you commit to paying back all of the liabilities, so long as you have a sufficient amount of time to do so.

Certainly creditors would really rather that you honour the terms of your existing agreements and make loan repayments in whole and on time. But, if you are not able to do this, they will want you to maximize the money that you will repay and lessen the overall duration that it will take you to make your payment in full. It is in creditors’ best interests that you choose a Debt Management Plan as opposed to going bankrupt whereby only a small percentage of your money owed would be repaid. Despite the fact that an Individual Voluntary Arrangement or IVA would give lenders a better return than they could expect to see in the case of your bankruptcy, they would still not be paid back the whole amount.

Creditors freezing interest and charges in a DMP

A crucial issue for any individual considering going into a Debt Management Plan is whether your lenders will agree to freezing interest on your debts in a Debt Management Plan. There is in fact no legal obligation on lenders to do that. Remember that a Debt Management Plan is an informal and voluntary course of action. The best you can expect is that creditors will adopt a pragmatic and sensible view on your financial circumstances and realise that applying interest and charges to debts that you cannot repay could just force you to give some thought to entering into another insolvency process like an IVA or bankruptcy. Consequently, once they are asked, most creditors generally agree to freezing interest and suspending penalty charges in order to help you to stick to your Debt Management Plan offer and to sustain the repayments that you proposed in your Debt Management Plan. Although some lenders might not freeze interest or suspend interest charges straight away right after your Debt Management Plan commences, once they observe that you are keeping to the terms of payment, they will normally do so, typically in a three to six months time period of your Debt Management Plan commencing. Creditors understand that if they don’t freeze interest and stop penalty charges, your total liabilities could actually increase as time goes on so that you will never fully pay off all of your debts.

Because you are pledging to pay off all of your debts the time period of your Debt Management Plan will probably be very long anyway and lenders know that this can be quite disheartening for you the person in debt. Lenders are also very aware that if they do not freeze interest and suspend penalty charges, you may be forced to petition for your own bankruptcy or go into an IVA. By law, in both of these processes, interest on debt is automatically frozen and penalty charges have to be dropped and creditors can do nothing about it.

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If you’d like more information on other sources of free debt help and advice you can visit MoneyHelper – an organisation, backed by government and set up to offer free and impartial advice to those in debt. - Click here to visit MoneyHelper