Debt Management Plan or a DIY repayment plan?

Summary: This paper looks at the issues surrounding engaging a Debt Management Plan (DMP) company to manage debts or to look to a DIY repaymet approach.

When the contractual repayment of debts becomes impossible (after meeting all other financial obligations) then it becomes necessary to look at other options. Assuming there are some funds available to repay debts, the choice is open as to whether a debtor tries to contact creditors themselves to sort out repayment plans or engage the services of a DMP company to do it for them.

Advantages of the do-it-yourself approach

Many creditors are sympathetic to the situation some find themselves in. Communicating clearly can lead to arrangements being put in place to allow the debtor to make some payment each month even if is well short of the required minimum payment. Indeed, for some only a small token payment is possible. Creditors would always prefer something to nothing and it is perfectly possible to keep a number of debts under some sort of control in this way. This do-it-yourself approach may provide the satisfaction of knowing that you are sorting the issue out without what might involve paying for an outside service.

The advantages of a DMP

Using the services of a reputable DMP company can have significant benefits. Utilising their expertise may lead to a more effective plan. Furthermore if there are a number of creditors the diy approach involves dealing with each creditor separately whereas a DMP company can put the whole plan to all creditors, so each can see they are getting their proportionate share f the available income. This is not impossible in the diy method but tends to be high maintenance and creditors may only agree for a short period of time before insisting on increased payments. The DMP Company has existing relationships with the creditors and can take considerable strain away from the debtor. It may be that the DMP Company will be more successful in getting creditors to agree to freeze interest charges - fairly essential for a successful repayment plan

Should I pay a DMP Company or not?

There are different types of DMP Company. Several are funded by creditors or have a charitable foundation that allows them to pass on the whole repayment to creditors. Assuming interest is frozen this plan will clearly lead to debts being cleared quicker. However some feel they would rather pay for a service that may be more personal, quicker and with a more hands-on approach to pushing for all interest charges to be frozen.