Alternatives to a Debt Management Plan (DMP)
Summary: Alternatives to a Debt Management Plan (DMP) - This article explores possible solutions to debts that don't involve the setting up of a Debt Management Plan.
A DMP is an informal, structured plan usually set up and managed by a DMP company that enables a debtor to repay their unsecured debts with one affordable monthly payment. Hundreds of thousands of such plans have been set up in the past few years. However what are the alternatives?
A DMP may well bring some short term relief, but may simply be papering over the cracks. For someone with serious debts and not a great deal of available income, the length of time a DMP would take to clear the debt may be excessive and unreasonable. Depending on the value of any assets (e.g. equity in property or car), it may be that the debtor simply needs to recognise that bankruptcy or an IVA are more appropriate solutions with a fixed end point.
Cashing in on assets
Some people look to DMP's when in fact they could make use of an asset in order to pay off debts or at least maintain repayment levels. The second car may be a luxury rather than a necessity and savings on running costs may provide sufficient funds to keep up with debt repayments. Releasing equity that may be accessible within a property is an obvious example of using an asset to clear a potentially high-interest rate unsecured debt.
Although we grow accustomed to a certain standard of living very easily, it may be that some short term changes will bring considerable long term benefits. Reducing expenditure or increasing income may be far more effective solutions to a debt problem. Millions of pounds of unclaimed benefits mean many people are missing out on funds they are entitled to. A lodger, a second job, overtime opportunities may also create opportunities to avoid a DMP.
Patience and planning
It's dangerous to get too used to debt that we become inactive when it comes to solutions. On the other hand, there may sometimes be the need for patience. If we know circumstances are going to change in the future, we need to factor this into our planning. It may be that a DMP will buy us the necessary time for the circumstances to change. Even a kind of diy DMP, where we simply pay our creditors token payments may well be a solution that keeps the debt under some control whilst allowing for the passing of time to create a new set of circumstances.