It’s time to get you started on debt plans if you’re struggling to keep up with your payments on loans or credit cards, for example. Being in debt is a way of life, we might say, but it doesn’t have to. Once you get set on a debt payoff plan, you might be on your way to becoming debt-free sooner than you think.
What is a debt management plan?
A debt management plan (DMP) is an agreement you make with your creditors to pay back non-priority debts. With a debt management plan, you can get your creditors to freeze the interest charges or even suspend them. This will help clear your debts faster.
A DMP is set up by debt management companies. The companies will charge a fee for their services, and it will be included in the repayments you make. When your free DMP is set up, you will need to make payments the debt management company once a month. The company will then share your money between the creditors.
There is no fixed lifespan to a DMP. Depending on how much you owe and how much you can afford to pay, your debt management plan could last a number of years.
Should you consider getting a debt management plan?
A debt management plan is a good option for individuals who are trying to pay back non-priority debts. We’re talking:
- Credit cards
- Unsecured bank loans
- Store cards
- Pay Day loans and doorstep lenders
- Water bills
- Store cards
- Loans from family or friends
It is a good option for you if:
- You can afford the repayments
- You would like someone else to take care of creditors for you
- You make one set payment per month to help you budget
Failing to pay non-priority debts is not as serious as not paying a priority debt, but you shouldn’t ignore it. It will not get you thrown into prison, but can result in charges over your house, CCJs, bailiffs, bankruptcy, and more.
If you are falling into one of the categories listed above, you should take a look into a debt reduction plan.
To get an idea if a debt management plan is the right solution for you, you could:
- Make a list of your income, which means all the money you make each month.
- Make a list of the expenses, which means rent, bills, childcare cost, food, travel, and all other costs you have.
- Deduct the expenses from the income. What is left is the available income you can afford to pay. Then talk to a debt management company about the possibility of getting your debt plans.
Where do you get a debt management plan?
Your get out of debt plan is set up by debt management companies or a debt charity. It is best to resort to an expert to give you advise on your debt reduction plan.
If you decide you want to get a DMP, be sure to check the contract you sign with the debt management company, so that:
- You can cancel anytime if you no longer want to use their service.
- You can reclaim the fee they charge if you cancel the plan.
- You can ensure that the correct debts are covered by the DMP.
- You make sure fees you have to pay are explained thoroughly.
Debt management plan pros and cons
Here are a few benefits of a DMP:
- One monthly payment to worry about.
- Some creditor will stop contacting you.
- You won’t have to contact them either; the debt management company will do that.
- Reduction and freezing of interest charges.
- You will reduce your payments so that you can afford them.
However, there are drawbacks to a DMP:
- Repayment can last for years.
- Debt management companies charge a free; this way it will take longer to pay your debts.
If you feel like debt management plans are not suitable for your needs, there are alternatives. You can opt for other debt plans, such as debt relief orders, debt consolidation, individual voluntary arrangement or budgeting.
It is also possible to take money from the pension fund earlier to pay your debts. But this will have an impact on your financial future. And it is likely that you will have to pay a tax to take out the money.
Whatever measure you want to take to be debt-free sooner, be sure to seek professional advice.