Debt Management Plan (Debt Management Programme)
A debt management plan is an informal arrangement between a borrower and their creditors when general contractual payments cannot be met due to the borrower facing financial difficulties.
The Debt Management Plan was introduced in the UK by the Consumer Credit Counselling Service (CCCS) almost 20 years ago. At that time, it was a debt solution that dealt with the fallout of unsecured lending as the personal lending market was expanding at a rapid pace.
A Debt Management Plan offers a structured agreement to pay all unsecured debts, instead of writing off some of the loans that would would within formal debt solutions such as Individual Voluntary Arrangement (IVA).
This agreement runs over a longer time than formerly agreed, with one affordable payment per month that the debtor is able to meet after having taken in to account their personal circumstances. The payment is distributed to lenders on a pro-rata basis.
A statement of income and expenditure is produced in order to decide just how much a person could realistically afford to pay after paying for all of their everyday living expenses.
One of the most important things about a debt management programme is that it provides an affordable way to subsequently pay off all the person’s debts. It makes sure the debtor has enough funds to afford everyday living expenses, instead of being obligated to give creditors their funds before living expenses are taken care of.
Having said that, you will find pluses and minuses in a programme such as this. A Debt Management Plan is an informal solution, which means that creditors don’t have to accept the programme – nevertheless the most companies do, and a number of freeze interest or fees, which means the money is paid back a lot quicker than it would be if the interest was still accruing.
One creditor disagreeing with the implementation of a DMP can not bring down the programme, but will make it more challenging for the debtor to pay off all of their debts successfully. In these rare cases the debt is still paid at the reduced pro-rata rate and your debt adviser will keep pushing for them to recognise the offer by proving that you are sticking to your revised payment schedule.
Setting Up a DMP
For those thinking of entering a DMP, you can organise it yourself and you can find web sites or internet forums that advise on the easiest way to go about this. It calls for creating a budget sheet – showing incomings, outgoings and debts – to clearly show what money is left over after essentials, household bills and priority bills are paid.
You then need to speak with each creditor, in turn, and ask them to accept reduced monthly repayments from any excess amount.
It should be noted, however, that it is a complicated procedure to set up a DMP on an individual basis and it could be fraught with problems, including negotiating with the very same lenders that are chasing you for money. For those in an overwhelmed state of mind this is just too much to contemplate.
Instead, we suggest that a third party arranges a programme for you so there’s an middle man between you and your creditors.
Getting this buffer means that for the duration of this stressful stage, when creditors and debt collection agencies are calling you continuously with demands, you have someone else acting in your greatest interest.
The advantage of using a go-between also comes from their relationships with the creditors. As they arrange countless DMPs each year, they are often in a stronger position to negotiate with the lenders.
DMPs provide a clear framework for paying off your debts and, should your creditors agree to the DMP, they’re incredibly practicable.
If you fail to adhere to the DMP repayments then other options might need to be considered, such as formal options like individual Voluntary Arrangement (IVA) or bankruptcy.
