DMP or maintain contractual repayments?
Summary: DMP or maintain contractual repayments? - This paper looks at when it may be necessary to stop the contractual repayment of debts and set up a Debt Management Plan (DMP).
When credit is taken there are contractual obligations on the debtor to repay the debt. Breaking such an agreement should not be undertaken lightly. Such a break is likely to have damaging effects on your credit rating, and may lead to legal action by the creditor. However there may be circumstances when doing so becomes advisable.
When I can't meet priority expenses
For some people, meeting debt repayments is an absolute priority above all others. It's the first thing they do when they get paid. The problem starts if they then don't have enough income left to meet other obligations. This will lead to either further borrowing or missed payments elsewhere. Both of these options have serious consequences. In the case of further borrowing, the overall debt may well be increasing and we may hit a point when the availability of credit runs out. In the case of missing other payments then we may find that missing rent or mortgage payments or council tax or utility bills have even more serious results. These payments are priorities and need to come even before repayment of unsecured debts.
When I become obsessed with my credit rating
Maintaining a healthy score is of course a very good thing. Everything from a mortgage to a mobile phone contract depends on it. However maintaining debt repayments at the expense of the priority outgoings outlined above is disguising the seriousness of financial circumstances. A good credit rating may be necessary for obtaining further credit - but may have to be sacrificed in order to meet priority outgoings. Controlling and repaying the debt may need to happen through a DMP to enable the debtor to get on top of their debt rather than perpetuate the vicious cycle of credit dependency they are in. An affordable repayment of debts means all priorities can be met and they have enough left to live on without needing further credit.
It may be that with a collection of high interest credit or store cards or catalogues or payday loans, the debtor is at best able to maintain minimum repayments but this only covers the monthly interest being added. Clearly this arrangement could last forever. If the debt is simply not reducing over a long period of time, it may be necessary to look at available options. It may well be that a DMP will provide an opportunity to repay the debts but with interest stopped and the capital repaid.