Let’s face it, nobody wants to find themselves buried under the weight of mounting debt, yet sometimes unforeseen circumstances can leave us with little choice but to seek assistance from a debt management plan. Despite the negative connotations often associated with such plans, I personally believe that they can provide a viable short term, medium term or even a long term solution for those struggling to regain control of their finances. Lets discuss why a Debt Management Plan (DMP) is a good idea, slso why Creditors and Debt Management Companies (DMC’s) are not great fans of the DMP.
What is Bad about a Debt Management Plan
I would say, that the DMP is not really considered a solution by creditors or DMC’s. I am sure that they will give you lots of reasons as to why you should consider a “better” option. I personally wonder if it boils down to the fact, there is a lot less money to be made from a DMP? There are other disadvantages, such as;
Negative impact on your credit score (well, any debt solution will have a bad impact on your credit score. If you are reading this, then probably your score is tumbling anyway.
Continued contact from creditors, some will try to keep on the pressure of getting more money from you, but they will in a shortish period of time accept the DMP, and those calls and letters will stop.
Long duration, often a DMP is considered bad because of the time it takes to become debt free (another money motivated response). However, is that a bad thing for you?
Regular reviews of your financial situation, depending on the Debt Collection Agency (DCA), they will want to review your financial situation to see if you can increase payments to them. This varies from DCA, every three, six or twelve months.
Creditors will continue to add interest. In my experience, if you tell a creditor that you are going into a DMP and you ask them to stop charging interest, they will more often than not, stop the interest, eventually they will all stop charging interest.
Why is a Debt Management Plan Good for You
It’s not uncommon for individuals to find themselves under immense pressure from creditors when they first get into debt. The constant calls and letters can be overwhelming, and it can feel like there’s no escape from the mounting financial burden. Despite the initial panic and stress that can come with being in debt, it’s important to remember that there are solutions available to help you manage your debt and get back on track. The problem is, which debt solution is best for you?
Short Term Debt Management Plan
Getting yourself into a DMP means that your creditors are getting some money and they are no longer harassing you. You now have time to think and explore your options for a debt solution. You will be able to explore the pros and cons of what is available out there for you. Just remember, some companies will offer you a solution that is best for their profits!
Long Term Debt Management Plan
The problem with a long term DMP is that you may never pay off your debts. Once again, this is from a creditors and DMC’s point of view, MONEY. But what if it actually suits you?? When in the DMP, you are paying an amount that you can afford, the creditors stop contacting you (except for the odd review). You don’t care any more about your credit rating. So, just from your point of view things aren’t that bad.
Example of Creditor Payment in DMP
Below you can see a statement of payments to creditors. The outstanding balance is £23,235.72, and monthly payments are £1 to each creditor, totalling a monthly payment of £11. Obviously, the DMC will be making a charge for this plan, but for the person who is in debt, this is now more manageable. There is also no reason why you can’t put yourself into your own DIY Debt Management Plan.
While I cannot offer advice, it may be worth considering a debt management plan (DMP) as a viable short-term option that could allow more time to explore alternative solutions. Although entering into a DMP is a significant financial decision that requires careful consideration, it could potentially offer you some relief from the burden of unmanageable debt. Ultimately, the decision to pursue a DMP or any other debt solution strategy should be based on your individual circumstances and goals, as well as your willingness and ability to commit to the necessary changes. Or if you are happy paying a small amount to your creditors, then a long term DMP ain’t that bad either.