A Debt Management Plan (DMP) is an affordable repayment plan where you calculate how much money you have available each month to pay your creditors.
DMPs can be suitable if:
- You can’t afford to keep up your contractual payments.
- You have debts of at least £5000.
- You have several creditors.
- Your have unsecured debts that could be enforceable.
- You have at least £100 a month to repay your creditors.
To determine how much you can afford to repay towards your debts, you need to put together a budget. See budgeting.
DMPs can be self-managed or arranged through a third party DMP provider. Both have advantages and disadvantages.
- The third party negotiates with your creditors on your behalf.
- Takes the stress out of dealing with creditors.
- You make a single monthly payment and the provider distributes the money to pay each creditor.
- You can get advice and support from the DMP provider.
- All correspondence is sent to the DMP provider, this can be useful if you don’t want others at home to find out about your debts.
- Loss of control over your financial affairs.
- Potential lack of information and loss of paperwork.
- You may not know which creditors have not frozen interest.
- Can be difficult to exclude some debts.
- You need to provide the DMP provider with a lot of personal and financial information.
- Some providers charge a fee while others are funded by creditors.
- You’ll normally be expected to have at least £100 a month available for repayments.
- You retain full control.
- You can chose to stop paying some creditors or to selectively offer a final settlement to some.
- You can offer any amount from £1 a month tokens.
- You know exactly what payments are being made and to who.
- You keep hold of all correspondence and paperwork.
- You choose what information to supply your creditors. No need to send a budget sheet if you don’t want to.
- You need to deal with creditors yourself.
- You may be pressured into paying more than you can afford.
- Some creditors may not take you seriously and may be more willing to communicate with intermediaries.
- You will keep getting letters and possibly calls.
- You may find it hard to get some creditors to agree to freeze interest.
Best known free DMP managers