A Debt Management Plan (DMP) allows the client to repay what they can afford to their creditors on a monthly basis. This is a repayment plan that allows the client to repay their debts on a pro-rata split, according to how much money is owed to each creditor. Payments are distributed to the creditors on a monthly basis through the Debt Management Company (DMC).
How Do Debt Management Plans help?
Debt management plans allow the client to pay smaller, more manageable payments to each creditor by monthly payments to the Debt Management Company, who will then distribute the funds to each creditor on a pro rata split. In many cases they will be able to freeze or reduce the interest on the accounts.
Financial Fact Find
The financial fact find is a breakdown which assesses the client’s financial situation. Monthly income and expenditure is recorded, as well as the total amount the client owes to all the individual creditors. The financial assessment shows how much each creditor will get on a pro-rata split, according to how much they owe each creditor.
DMC’s should also be able to negotiate reduced payments for priority debts. Obviously priority debts are more important and will be given a higher priority in the negotiation process. Priority debts are debts that have a serious consequence if left unpaid e.g. Council Tax, Rent Arrears etc.
How will my credit file be affected if I enter into a Debt Management Plan?
It is not the DMP that will affect your credit file; rather it is the impact of missed/insufficient payments that will have a negative impact. This is because the contract entered into at the time of agreeing to the credit facility has not been honoured, taking this into account, by the time a client starts a DMP , the damage has already been done to their credit file.