What is a debt management plan? Benefits

Mounting debts can be crippling for households and overwhelming for individuals. If you are struggling with debt you may find yourself in a situation where you are unable to make the necessary payments, which creates a downward spiral that is hard to escape.

But thankfully, if you are in this situation, there are measures that you can put in place to manage and reduce debt. A Debt Management Plan is one of them.

What is a Debt Management Plan?

Debt Management Plans (also known as DMPs) are measures that you can put in place to help you manage the repayment of unsecured loans. An unsecured loan is one that is given to you based on your creditworthiness rather than secured against any type of collateral (such as your house or car).

Simply, a debt management plan is a repayment plan that’s set up with a view to helping you repay your debts without defaulting or having to declare bankruptcy. These are usually set up and managed by a credit counselling agency, who will negotiate with creditors on your behalf to create new payment plans with lower interest rates and monthly payments.

Which debts does a Debt Management Plan cover?

A debt management plan can be set up for unsecured loans and non-priority debts. These include in-store credit cards, catalogue debts, credit cards, payday loans, personal loans and overdrafts.

Debt management plans cannot be used to pay off priority debts such as Council Tax, household bills, child maintenance, mortgage, rent, or hire purchase agreements.

What are the advantages of a Debt Management Plan?

A Clear Plan Of Action

If you’ve been struggling with debt for a while, you might find it a relief to talk to someone who is non-judgmental and helpful. At times of stress and anxiety, it is hard to see the wood for the trees and easy to feel helpless.

One of the first steps in seeking out a DMP is to speak to a counsellor who will talk to you about your budget, current debts, and future goals. In that first consultation, you will get an idea of the best course of action. Just doing this can calm your mind and help you see more clearly.

Managed Contact With Creditors

When you seek out a Debt Management Plan your assigned counsellor will work with creditors to negotiate lower payments, interest rates and charges. In some cases, they may be able to persuade creditors to waive fees, too. When this is agreed, you will be in a position where the money you can pay towards your debts goes further and you’ll be out of debt sooner.

Many of us aren’t in a position where we would be able to confidently have these types of conversations with creditors. So having someone on your side who advocates for you can do wonders in getting the job done.

Streamlined Repayments

When you work with a Debt Management Plan, you’ll only need to send one monthly payment directly to the agency you are working with. This means that the whole process is streamlined and nothing gets forgotten about or miscalculated. This can take an incredible amount of stress off your shoulders, and give you peace of mind that the situation is being dealt with.

Do I have to pay for a debt management plan?

You may notice that some debt management plan providers charge a fee for their services – but this isn’t always the case. In fact, there are several DMP providers who do not charge a fee. So if you don’t want to (or can’t) pay, then you don’t need to.

Services like National Debtline, StepChange, and Payplan can refer you for or set up a fee-free DMP for you. Many of these services can also provide recommendations and self-help information to support you with budgeting and managing your finances.

Get Financial Advice with BBO

Do you think you need a debt management plan? If so, and you live in Stafford or South Staffordshire, contact us today. At BBO, we work closely with a range of organisations to help individuals access appropriate financial advice and provide guidance and support throughout the process.

To get in touch with us, simply fill in the form below. Alternatively, pop into one of our Drop-In Sessions for a chat with an Advocate. You can find your nearest one here.