Notice of defaults: everything you need to know
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If you’ve been researching ways to deal with problem debt, you’ll no doubt have come across a solution called a Debt Management Plan (DMP). But is it right for you?
To get an answer to that, you’ll need to talk to an expert Debt Advisor, but we’ll take you through the basics of how DMPs work and their advantages (and disadvantages) here.
How a Debt Management Plan works
Simply put, a DMP is an informal agreement between you and your lenders for you to pay off your debts at a rate you can afford. As you're paying less towards your debts each month, you’ll take longer to clear them.
You can set up a DMP with your lenders yourself, or use a Debt Advisor, like those at Debt Advisory Centre, to help you. Firstly, we’ll work out how much you can realistically afford to put towards your debts each month, based on your income and spending. We’ll make sure you have enough set aside to cover your essentials such as rent, gas and electricity, council tax, food, travel and so on.
We’ll offer your lenders their share of what you can afford, and ask them to accept the lower payment, and to stop adding any more interest or charges to what you owe. They don’t have to accept, but because you're in financial difficulties, and they can see you're paying what you can afford, they usually do so.
What sort of bonuses could you look forward to with life on a DMP?
• A single, affordable monthly payment
• Interest and charges are usually frozen
• You’ll get far less contact from your lenders – just regular statements
• Your DMP is an informal agreement, so you can cancel it at any time (for example, if your situation improves)
As with any debt solution, you also have to consider the downsides of a DMP.
• It'll take you longer to pay off what you owe, and it may cost you more to do so
• Your lenders don’t have to agree to your DMP – even if they do, they might not freeze your interest and charges
• Your credit record will also be affected, because you’re breaking the original agreement you made with your lenders
Find out more
Want to find out more? Check out our Debt Management Plan guide for details about what’s involved with a DMP. Alternatively, the Money Advice Service has more information on DMPS and other debt solutions, too.
If you’re in Scotland
If you live in Scotland, you can still get a DMP, but there’s also an alternative called a Debt Arrangement Scheme (DAS), which is only available north of the border. It works in a similar way to a DMP, but DAS is a legally binding arrangement with your lenders.
by Christine WalshBack to blog home