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Living on a debt solution

How do you manage my payments on a DMP?

Posted 17 March 2016 by Christine Walsh

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Do you know how your payments are handled on a DMP? Learn how your payment will be distributed and how a DMP could help you manage your debts.

In the right circumstances, a Debt Management Plan (DMP) can really help you manage your unsecured debts and get back on track with your finances. If you decide to use a debt solution provider for your DMP, it would involve them collecting a single monthly payment from you which they would then distribute to your creditors. 

In todays’ blog, we’re going to look in more detail at how a DMP works and how we would manage your payments on the plan. 

What is a DMP?

So, in case you’re not sure, a DMP is an informal debt solution that aims to allow you to repay all your unsecured debts at a lower, more affordable rate. You’d continue to pay the amount off until the whole of your debt was gone, so how long you stay on a DMP depends on how much money you owe and how much spare money you’ve got to put towards your debts. We’d calculate this by looking in detail at how much money you’ve got coming in each month, then deducting the amount you need to cover your priority bills – such as your rent, food, utilities, clothes and essential travel costs.  The money left over, after allowing for those, is the amount that you would have available to pay your debts.

The informal part means it’s not legally binding, and your creditors don’t have to agree to any of the terms or freeze interest or charges on what you owe. However, if you can demonstrate that you’re making every effort to pay your debts back at a rate that’s affordable to you, your creditors can agree to accept the lower payments and may also freeze interest and charges altogether. A DMP can, therefore, significantly improve your overall situation, as you won’t have to worry whether you’ll be able to afford to pay your debts as well as your other expenses. And, because your unsecured repayments have come down, you may find it’s easier to maintain any secured payments as well. 

 

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How do I start a DMP?

There are two ways that you can get a DMP, you can either arrange one yourself by contacting your creditors directly and offering them a lower amount of money. Or, you can use a debt solution provider, such as ourselves, to arrange everything for you. It may also be possible to get a DMP arranged free of charge through various debt charities. 

If you were to go ahead with a DMP with us, we would manage the whole plan for you and there would be fees payable for this service – click here for the details. We would handle the process from beginning to end, no matter how long you were on the DMP for, and we’d make sure that everything ran smoothly. This would include contacting your creditors for you and making sure that the offers being made are fair to everyone involved and leave you with enough money to afford your essential bills at the same time. We’d also deal with and reply to any correspondence or enquiries from your creditors during the DMP – not having to deal with creditor contact anymore can be one of the most appealing aspects of a DMP for people in problem debt. 

If you don’t feel comfortable or confident dealing with your creditors yourself, or making sure that the right amount of money is paid to the right creditor, you may find that getting someone to manage this for you is the best course of action. Just always make sure you understand what the fees are before you go ahead. 

How we manage your payments

If you went ahead with a DMP with us, the first payment that you make would be kept for 14 days before being sent out. This is so we have time to confirm the balances of your accounts with your creditors and make sure the correct amount will be paid to each one. We’d also deduct our fee which is taken from the affordable amount you pay each month, not as an extra, separate amount. We would then distribute the payment to your creditors. 

From then on, when we receive your payments each month, we will make the payment to your creditors within five days of receiving the funds. It’s possible for you to pay us weekly, fortnightly, four weekly, or monthly but we will always distribute within five days of receiving the full amount. You can make your payment via direct debit, Giro, Pay Point or a standing order. We make the payments to your creditors on a pro rata basis – this means that the creditor to whom you owe the most money will get the lion’s share of your payment once any fees have been taken, and so on and so forth. 

This is why it’s sometimes not a good idea to simply pay off a certain debt on your DMP, if you happen to find yourself with some spare cash. If you’d started a Debt Management Plan, and decided to pay off one of your smaller debts with some spare money, this might be seen as you giving one creditor preferential treatment. If you do come into some money, it’s a great idea to put this towards your debts – but it’s best to give us a call beforehand and let us know about it. That way we can make sure your money continues to be distributed on a pro rata basis and any priority debts are given just that – priority. 

The downsides of a DMP

Whilst there are clearly many potential benefits to starting a DMP if you fit the criteria, there are also possible negatives that you need to be aware of. 

Because you’re still committing to paying the whole amount of your debt off, it will take you longer to be debt free, as your new payments will be less than your contractual ones. 

A DMP will also have a negative effect on your credit rating, as you will no longer be making the contractual payments that you agreed to when you first took out the credit. The fact that you’re paying a reduced payment on your debts would show on your credit file for six years and this may mean that, in the future, borrowing becomes harder or more expensive.

For a more detailed look into both the pros and cons of a DMP, have a look here. Remember, if you’re still not sure whether you need to start a DMP, or whether there’s another solution out there that’s better for you, our advisors can help, simply use one of the options to the left to get in touch.

 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.