Debt management plans - what you need to know (2024)

FAQs

Debt management plans - what you need to know? ›

Debt management plans are structured repayment plans to help you repay outstanding debt. In most cases, credit counseling agencies negotiate payment plans on your behalf. It also involves you restructuring your budget to pay off old debt, manage your current finances, and find other ways to become financially secure.

Get debt advice from a debt charity or debt management company before you choose a debt solution. Your provider will let you know if a DMP is right for you. This process is simple and can be done online.

Sometimes a creditor will refuse to deal with a DMP provider. This could be because the creditor doesn't want to accept the reduced payments or sometimes it could be because they've objected to you using a fee-charging provider, which would mean there's less money to pay the debts you have with them.

Every participating creditor offers their own rates, but in aggregate, the average interest rate for accounts included on a debt management plan with MMI is below 8%.

Can you get a new credit card on a debt management plan? While on a debt management plan (DMP), you are technically free to take out a new credit card – though you may find it harder to be approved for one. When you apply for credit, lenders typically conduct a thorough check on your credit report.

The cons of Debt Management Plans

Creditors require the accounts to be closed in order to be put on a DMP. This can slightly lower your credit score, because closing multiple accounts at the same time affects the length of your credit history.

Debts that cannot be included in a debt management plan (DMP) are those that are considered 'priority debts' such as mortgages and secured loans, student loans, court fines, and child support payments.

You usually can't include these debts in a DMP - check with the DMP provider. You'll need to choose another debt solution for your priority debts if you can't put them in a DMP. Non-priority debts are less urgent and include things like bank loans, credit cards, student loans, water charges and benefits overpayments.

Your Bank Account & A Debt Management Plan

In conclusion, a Debt Management Plan (DMP) does not directly affect your bank account. You can usually continue using your current bank account as usual when you enter a DMP providing that you do not wish to include a debt on your DMP that is with your bank account provider.

What is a good monthly debt? ›

It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”

The act of being on a DMP has no direct impact on your credit score – either in a good way or in a bad way. However, the actions associated with it might. If your DMP results in you paying less than the originally agreed amount to your creditors, these monthly payments can be recorded as missed or late.

If a credit card account remains open after you've paid it off through debt consolidation, you can still use it. However, running up another balance could make it difficult to pay off your debt consolidation account.

How long does a DMP stay on your credit file? Debts will stay on your report for six years, starting from the date they're paid off or defaulted. A DMP means you'll repay your debts more slowly, so your score may be negatively impacted for longer.

You may be able to pay your DMP off early if: You increase your monthly payments. You make full and final settlements on your debts.

Debt management is the process of planning your debt liabilities and repayments. You can do this yourself, or use a third-party negotiator (usually called a credit counselor). This person or company works with your lenders to negotiate lower interest rates and combine all your debt payments into one monthly payment.

Debt collection can generally be split into three different stages: pre-legal, legal, and enforcement. Pre-legal has quite a wide-ranging definition; generally, however, it refers to any action being taken before proceedings are issued and can include emails, texts, letters, and phone calls.