I'm Karen!

I am a blogger and finance coach. My specialty is helping couples get on the same financial page and win with money and marriage. 

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Financial Planning

Dealing with Debt: Debt Management Plan (DMP)

Dealing with debt can be overwhelming, especially when you’re struggling to keep up with multiple credit card payments, loans, and store cards. In such situations, a Debt Management Plan (DMP) can provide a viable solution. This blog aims to shed light on how DMPs work and the types of debts they can help you address.

Understanding the Mechanics of a Debt Management Plan

If you find yourself dealing with debts from credit cards, store cards, personal loans, or overdrafts, a Debt Management Plan could be an appropriate choice. With a DMP, you collaborate with a DMP provider to establish an affordable payment plan and negotiate with your creditors on your behalf.

Typically, you’ll need a minimum of ¬£5 or more to allocate to each creditor, although this amount may vary. Instead of managing multiple payments, you make a single monthly payment to the DMP provider, who then distributes the funds to your creditors.

Determining Eligible Debts for a DMP

It’s essential to note that a Debt Management Plan can only be used to address non-priority debts. Examples of eligible debts include overdrafts, personal loans, borrowed money from friends or family, credit cards, store cards, and bank or building society loans.

Debts That Cannot Be Addressed with a DMP

While a DMP is a valuable tool for dealing with debts, it’s important to recognise that certain debts cannot be included. These priority debts typically consist of:

  • Mortgage, rent, and loans secured against your home
  • Court fines
  • TV licence
  • Council Tax
  • Gas and electricity bills
  • Child support and maintenance
  • Hire purchase agreements for essential items

Determining if a DMP is the Right Choice for You

A DMP may be the ideal solution if:

  • You can comfortably manage your monthly repayments for priority debts but struggle with credit cards and loans.
  • You prefer having someone handle communication with your creditors on your behalf.
  • A consolidated monthly payment would facilitate better budgeting.

However, before committing to a DMP, it’s crucial to understand its potential implications:

  • Repayment duration may increase as you pay lower monthly amounts.
  • Creditors may not freeze the interest and charges on your debts, resulting in a slower reduction of the owed amount.
  • Some DMP providers may charge a fee, but numerous free alternatives are available.
  • Your creditors might refuse cooperation or continue contacting you during the DMP.
  • A DMP could impact your credit record, potentially affecting your future access to credit.

If you’re uncertain about whether a DMP aligns with your needs, exploring alternative options for managing your debts is advisable.

Exploring Debt Management Plan Providers

When seeking assistance with Debt Management Plans, it’s important to note that many debt advice organisations offer their services for free. Some notable organisations include Step Change and Christians Against Poverty (CAP), both of which are debt counselling charities providing free assistance across the UK.

Conclusion

Dealing with overwhelming debt can be a challenging endeavor, but a Debt Management Plan (DMP) offers a potential solution. By understanding how DMPs work and which debts they can address, you can make an informed decision about whether this approach aligns with your financial needs.

Remember to consider the potential impacts and explore reputable debt advice organisations that offer free assistance in order to make the best choice for your circumstances.

Whatever you decide regarding a DMP, be sure to keep in touch and let me know how you get on.

hello@moneyandmarriage.net

Also, don’t forget my freebies page with some resources that can help you on your debt free journey.

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