If you have unsecured debts/accounts that you struggling to pay each month, one option to get your financial house in order is a Debt Management Plan or DMP.
A Debt Management Plan is an informal arrangement with the banks and lenders you owe for unsecured accounts, things like credit cards, personal loans, even payday loans in some instances. This informal arrangement is to allow you to repay the debts in a manner that is more affordable to you, as the repayments are based on what you can afford each month.
It is also requested of your creditors to freeze the accounts to any new interest or charges.
You can set-up a Debt Management Plan on your own, however, most people find it not only time consuming, but also they are unsure of what to do. So DMP’s are usually set-up by third party commercial, or non-commercial companies, that the creditors know and have worked with in the past.
The third party debt management firm will complete a detailed income and expenditure form with you, outlining all your monthly bills. It will show your rent or mortgage, utilities, food, any insurances, all your monthly bills. What money you have as a surplus or residual, is what is used to pay your creditors. The payments are on a pro rata basis to each creditor. You make one monthly payment to the debt management firm, and they send the payments to your creditors.
Debt Management Plans are used throughout the UK, the United States, and even Canada. There are slight differences between the countries. Those differences can be the payment amount a creditor may accept, and also the amount of concession a creditor may make in any interest and charges.
Here is an example as to how your creditors are paid:
You owe 11,000 to four (4) different creditors.
Creditor A – 5,000
Creditor B – 3,000
Creditor C – 2,000
Creditor D – 1,000
You have 250 available each month to pay towards all the debts.
Creditor A – As they have 45% of the debt, they will receive 112.50 each month.
Creditor B – They have 27% of the total debt, their monthly payment will be 68.18.
Creditor C – Has 18%, so their payment will be 45.45.
Creditor D – They have 9%, and the payment to them will be 22.73.
The figures can be rounded in order to fit the exact amounts.
You can think of a DMP payment as a snowball rolling down a hill. As the snowballs rolls it picks up more snow causing it to grow and roll faster.
With a Debt Management Plan once one account is paid in full, that payment is then applied to another account to pay that account off quicker.
So if you are struggling with credit cards, loans and other unsecured debts, a DMP may be one option to get them under control.