Acting as an alternative to the 'formal' debt solution of an IVA - Debt Management Plans offer an 'informal' way of dealing with a debt problem.
Debt Management Plans provide the structure needed to enable a person the opportunity to reduce their repayments to their creditors in a measured and fair way that's based on affordability.
Because a Debt Management Plan is an informal agreement there is no legally binding aspect to it. Creditors can please themselves as to whether they will freeze interest on the outstanding debts and they also retain the right to take legal action against the debtor at any time they wish. A Debt Management Plans is also unlikely to provide any debt write-off or debt forgiveness.
Legal action could range from obtaining a CCJ against the debtor through to making the debtor bankrupt.
Also due to the informal nature of a Debt Management Plan, there will be no debt written-off by the Plan. Instead the Debt Management Plan will continue until all the debt has been repaid and any additional costs have been covered.
But generally, creditors will agree to accept a Debt Management Plan as a short term debt solution, though they will usually expect regular reviews of the debtor's circumstances.
Setting up the Debt Management Plan is usually quite a simple process.
As mentioned earlier, payments are based on affordability with a 'pro rata' system being used to distribute the payments to creditors. In most circumstances, so long as creditors can see they are receiving their fair share of the payments, they are happy.
Types of Debt Management Plans
There are two types of Debt Management Plans in the UK:
Commercial Debt Management Plans
There are hundreds of commercial debt management companies in the UK, each offering their own debt management advice on how best to deal a serious debt problem. However, there can be significant differences between these debt management companies and the quality of debt advice that they offer, so you should be prepared to shop around before you commit to any particular company.
After an initial free consultation, most commercial debt management companies will charge fees for the debt management services they provide. The level of fees will vary from company to company, but usually there will be a set up fee, as well as an monthly management fee, which gets deducted from your monthly payment before distribution to creditors.
Charitable Debt Management Plans
There are some organisations, set up and supported by creditors, which provide debt management services and debt management solutions to people without charging any fees at all.
It is widely accepted that these organisations provide clear debt management advice and help, creating a valuable service to debt management in the UK, by providing debt management plans for tens of thousands of people, who otherwise would be unable to afford to deal with their debt problems. Also, having no monthly fees being deducted from your payments will allow your debt to be repaid more quickly than otherwise would be the case.
Deciding on which type of DMP to choose can be very confusing, so call 0800 856 8569 if you wish to discuss which option would be best for you. For more information about charitable debt management companies click here