Tackling your debts

How a DMP can cut your monthly repayments

Posted 16 March 2017

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This solution lowers your monthly repayments on your unsecured debts while you continue to repay everything that you owe.

If you’re struggling to repay your unsecured debts, you might have heard about Debt Management Plans (DMPs). A DMP is an informal debt solution and is one way to lower your repayments and make your debts affordable again.

Let’s explore when a DMP might be the right way forward.

How does a DMP work?

A Debt Management Plan is an informal debt solution, which means that it’s not legally binding for you or your creditors, it’s simply an agreement that you come to with them to make your repayments affordable again.

What you pay towards your debts is worked out based on your disposable income. This means that you’ll always have enough money set aside to afford your essential bills, as well as your DMP payments. Your DMP lasts for as long as necessary to allow you to repay everything. Because you are paying less towards your debts each month it will, of course, take longer to pay them off.

Because a DMP isn’t formal, there’s no legal requirement for your creditors to freeze interest and charges, however they usually agree to do this, if they can see that you are struggling to repay your debts and what you are offering to pay is fair.

You can arrange a DMP with your creditors yourself, if that’s something you’re comfortable with. If you prefer, the Money Advice Service can direct you to a free provider of DMPs, or you can contact a firm such as Debt Advisory Centre directly.

What are the downsides?

If your creditors haven’t already issued you with a default, then it’s likely they will do so when you start a DMP. A default means that the creditor considers the agreement that you first signed to be broken and they may then ask for all of the money you owe in one go.

So starting a DMP will damage your credit history because you are technically breaking your original agreement by lowering your repayments, even though it’s with your creditors’ permission. This damage to your credit history might mean it’s harder for you to get credit in the future or be approved for certain services, like a mobile phone contract. As we said earlier, your creditors don’t have a legal obligation to freeze interest and charges when you start a DMP but they often decide to do so.

by Christine Walsh

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