More About Debt Management Plans
What is a Debt Management Plan?
A Debt Management Plan (DMP) may be suitable for you if you are struggling to either pay unsecured debt or maintain essential bills due to the demands of servicing your debt.
By choosing a DMP you could consolidate all your unsecured debt into one affordable debt payment, allowing you to comfortably maintain your essential living costs. The debt payment is a reflection of what you can afford not what your creditors want from you. Creditors are only entitled to what you can realistically afford to pay.
We aim to eliminate the stress of being in debt. We liaise with your creditors on your behalf, negotiating where possible to freeze interest and charges and prevent any legal action. We deal with any paperwork you receive and will offer you all the help and advice you need.
How Does A Debt Management Plan Work?
We calculate how much you can afford to pay each month by compiling a financial statement, ensuring you have enough money to pay your priority bills first. You have the right to pay housing costs and other essential bills before paying unsecured debt.
We compile a financial statement showing exactly how much disposable income you have available and make offers of repayment that are fair to everybody. These offers are pro rata and reflect the amount owed to each company.
Upon receipt of your regular monthly payments we distribute the available funds to your creditors within 5 working days. You will receive a statement each month showing exactly how much each of your creditors are receiving.
We endeavour to ensure that our offers are accepted and where possible, that any interest or charges are frozen on your accounts. This will ensure that your debts are cleared in the quickest time possible. The time it will take to clear your debts will be determined by the amount of your monthly payment.
We make every effort to ensure that contact between you and your creditors, is kept to a minimum. We bridge the gap, giving your creditors a point of contact and you all the help and advice you need.
The Debt Management Plan is flexible to meet your needs. There is no fixed term contract involved and you can reduce or increase your payment if your circumstances change. We will review your situation regularly to ensure it remains affordable and the best possible solution.
Is A Debt Management Plan Suitable For Me?
A Debt Management Plan (DMP) may be suitable for you if you are struggling with unsecured debts, owe a minimum of £2,000 and can contribute a minimum of £130 per month to the plan. There is no maximum debt level for a DMP.
If you owe more than £5,000 and you do not have any significant assets (property), an Individual Voluntary Agreement (IVA) or another debt solution may be more suitable. See the full range of debt solutions covered in our Debt Advice Consultations.
A DMP is not always suitable and meeting the above criteria does not guarantee that a DMP would be the best solution for you.
Debt Management Plan Fees
For the duration of your Debt Management Plan, we charge a flat rate monthly management fee of £42.00. In addition to this we charge a flat rate setup fee of £240.00 which is deducted from your monthly payment over the initial 12 months of your plan. This to ensure your creditors always receive the majority of your payment. The setup fee is to cover the following:
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Agreeing a personal monthly budget with you and creating an income and expenditure statement.
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Calculating your reduced Monthly Payment; negotiating with each of your Creditors to agree to the reduced Monthly Repayments and requesting that they freeze interest and charges where possible.
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Administration and preparation of your Debt Management Plan.
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Negotiation and implementation of a Monthly Repayment schedule with each of your Creditors.
Please see the fee example below which demonstrates how to calculate the total fees payable on a Debt Management Plan.
Example
Unsecured Debt Level £8,000.00
Monthly Payment £250.00
Duration of Plan 40 months
Initial 12 months
Monthly Payment £250.00
Monthly Fee £42.00
Set Up Fee £20.00
Amount distributed £188.00
to creditors
Month 13 onwards
Monthly Payment £250.00
Monthly Fee £42.00
Amount distributed £208.00
to creditors
Duration of plan 40 months
Set Up Fee £240.00
Management Fees £1,680.00
(£42.00 x 40)
Total fees Payable £1,920.00
Debt Management Plan FAQs
How much does a Debt Management Plan cost?
We charge a flat rate setup fee of £240.00 for our Debt Management Plans. The set up fee is deducted from your monthly paymenbt over the first 12 months of your plan. We will also retain a monthly management fee of £42.00 per month for the etire duration of your plan. If you stop making payments to the plan you will not be liable for this fee. We only charge for the service we provide.
It may be necessary to increase your management fee at some point in the future. However, this is not common practice and we will notify you in writing, if for any reason this becomes necessary. If you do not agree to the proposed increase, you will inform us that you wish to terminate the contract and we will provide up to a three month ‘grace’ period where we will continue the service at the previous rate in order to provide sufficient time for you to seek alternative advice.
The monthly fee is to cover:
i) Monthly maintenance of your file
ii) Contacting your creditors for recent balances
iii) Updating the financial statement and calculating the monthly payments to the creditors based on this information
iv) Dealing with any questions or queries your creditors may have.
v) Distribution of your funds
vi) Reviews carried out on the file
vii) The provision of ongoing support, answering of any questions or concerns you may have.
Do I meet the criteria for a Debt Management Plan?
We need to discuss your circumstances to establish if we can help you, but essentially if you have unsecured debts of over £2000, you are struggling to meet the repayments but you can afford to contribute at least £130 per month, then we should be able to help.
How long will it take to pay back my debts?
This is subject to many contributing factors such as the level of debt you have and how much you can afford to pay each month; each and every plan is different. A simple calculation to estimate the duration of the plan is to divide your total debt by your net disposable income (monthly payment minus your management fee) and add one month. You can find an example in our Debt Management Fees section.
How do you hold and distribute my money?
Your funds are distributed to your creditors by BACS within five working days of receipt. Your money is protected in our secure ring-fenced client account.
What type of debts can be included on the plan?
Any unsecured, non-priority debts can be included on the plan. These include bank overdraft accounts, loans, credit/store cards, catalogues, most retail finance agreements (e.g. electrical goods) payday loans and even some old utility (gas/electricity/water) and phone bills.
What type of debts cannot be included on the plan?
You cannot include your essential bills such as your rent or mortgage, any loans secured on your home, council tax, current utility/household bills, current car finance, current mobile phone contracts or any insurance policies for which you require the cover it provides. An adviser will discuss fully what can and cannot be included during your telephone consultation.
Will the interest and charges be frozen on my accounts?
Interest and charges are reduced or frozen at the discretion of your creditors. However, we are very experienced in negotiating with all types of financial institutions and every effort is made to ensure where possible, that interest and charges do not accrue on your accounts.
Will my creditors contact me?
We make every effort to ensure that agreements are made with your creditors so that contact with them is kept to a minimum. However, your creditors are duty bound to write to you at certain stages of the collection process and to send you statements while the accounts are active. This is perfectly normal and is no cause for alarm. We simply ask that you forward any paperwork you receive to us and we will deal with it accordingly.
What does 'disposable income' mean and how do you calculate what my creditors receive?
Your disposable income is the amount of money you have available each month after you have met your essential expenditure; your net disposable income is this figure minus our fee. We calculate what your creditors receive on a 'pro rata' basis to ensure they each receive a fair payment. The calculation is a percentage and reflects how much of the total debt is owed to each creditor.
What does consolidation mean?
Consolidation or to consolidate simply means to combine two or more items, in this case it refers to your monthly payments. We 'consolidate' your payments in to one affordable monthly payment.
Will the plan affect my credit rating?
Your credit rating will be seriously adversely affected by entering into a Debt Management Plan. When you enter into any credit agreement you agree a contract to repay an amount or get provided with a credit facility which stipulate terms of interest, repayment terms etc. By entering into DMP you are effectively attempting to renegotiate these terms. Default notices are likely to be issued and recorded on your credit file as a default notice is a record that you did not keep to the terms of the original agreement. Information that is recorded on your credit file will remain for a period of six years.
If default notices or proceedings in the county court are issued your credit rating will be compromised further. This will make it difficult for you to obtain credit, or to access goods and services as this rating is the basis for many lenders risk assessment. If you currently have a mortgage, or are intending to purchase a property, an impaired credit rating is likely to impair your ability to access the mortgage market or to access the best available mortgage rates. Letting agents and landlords may also wish to check individual credit worthiness before agreeing a tenancy a poor credit history may affect your ability to rent a property.