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What are the benefits of a Debt Management Plan (DMP)?

Summary: This article explores the potential advantages / benefits that a Debt Management Plan (DMP) can bring.

A DMP is an informal (I.e. not legally binding) debt solution that enables debtors to repay their debt through a managed plan at an affordable rate. There are a number of features of DMP's that are likely to prove beneficial to those entering one. Some of these include:

Advantages of Debt Management Plan (DMP)

  1. DMP companies - can provide professional advice on how to set up a DMP and repayment levels that are affordable to the debtor, and likely to be acceptable to the creditors. DMP companies do vary a lot and it probably makes sense to speak to more than one to compare advice.
  2. Affordable payment levels - the problem for many of us is that once we have met the contractual repayments on debts, we don't have enough to live on from the remainder of our income and therefore have to use more credit. This creates a vicious circle of credit-dependency. If we were paying an affordable payment on our debts, we could break this vicious circle.
  3. No preferential treatment - by putting all debts together into one plan, each creditor can see that they are being treated equally to other creditors. Each will receive a payment that is proportionate to the other creditors, relative to the overall debt level. E.g. if a particular credit card were owed 20% of the total debt level, they should receive 20% of the available income to be distributed to all creditors through the plan.
  4. One payment instead of many - for some, it is the number of payments each month that can be problematic. By bringing payments together into one plan, we can ensure that payments are not missed or late.
  5. Preventing creditor action - once we hit problems with repaying debts, creditors want to understand why that is. Failure to repay a debt will lead to further creditor action - from frequent calls, letters to legal action. Most creditors will be receptive to a repayment plan when they understand the nature of the problem. Some payment is always better than no payment.
  6. Flexibility - bankruptcy or IVA's tend to be more formal, legal solutions where an Official Receiver (in bankruptcy) or an Insolvency Practitioner (in an IVA) has legal powers to oversee the financial arrangements. Clearly they are entrusted with a responsibility to ensure the debtor pays as much as they can back of their debt, albeit over a fixed time period. A DMP, being informal is more flexible, enabling the debtor to end the plan anytime or change payment when appropriate.
  7. Repaying whole debt - for many debtors it's not a case of trying to avoid repaying their debt - they definitely want to. They have just got into a situation with high repayments and high interest rates, of not being able to control the debt by making contractual repayments. A DMP enables them to repay their debt in a controlled, structured way. They will also avoid the insolvency route of bankruptcy/IVA.
  8. Settlement offers - creditors in a DMP are receiving their debt back but often over a fairly long period of time. They may well be open to lump sum settlements where the whole debt is cleared with a 1-off payment of less than the full amount.

The above is provided as information only. Iva.co.uk does not provide debt advice. You must always seek professional advice before taking any action to resolve your debts.