How to Apply for a Debt Management Plan – Full Guide
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If you’re having debt problems, then a debt management plan can definitely be a prudent way of taking care of them.
That being said, many people are often confused about how to get a DMP and set it up.
That’s why today, I’ll be looking at what process you’ll be following when you’re setting up a debt management plan.
Don’t worry, here’s what to do!
There are several debt solutions in the UK that can be used to improve your finances. Choosing the right way to tackle your debt could save you time and money, but the wrong one could cause even more harm.
It’s always best to find out about all your options from a professional before you take action.
Fill out the 5 step form to get started.
How do I Go About Obtaining a Debt Management Plan (DMP) for Myself?
While a debt management plan can definitely be a great solution towards fixing your debt problems, the application process for it can be confusing for some.
There are definitely some things you need to be aware of before you apply for a DMP so, let’s go over them:
Step 1: Identifying Priority Debts
Before you even start looking at DMP providers and debt management companies, you’re going to have to look towards the debts you have.
It’s important to note that a DMP is an informal agreement and it does not cover priority debts. It only covers unsecured debts such as credit cards, catalogue debt, store cards, etc.
If all the debts that you have are only priority debts, then a DMP would definitely not be a suitable option for you.
Alternatively, if you have a combination of priority and non-priority debts, then you’re going to have to do some calculations.
When you enter into a DMP with both priority debts as well as debts that are non-priority, then you make payments towards your priority debts separately.
Your payments towards your priority debts are considered part of your essential costs when your payment plan for your DMP is being devised.
Thus, you need to calculate whether or not you’ll have a sizable enough spare monthly income to give towards your DMP after you’ve made your payments towards your priority debts.
If your spare income that you can give towards your DMP is too low, then your creditors won’t agree to it and there’ll be no point towards pursuing a DMP.
Your debt management company can help you identify which of the debts you have are priority and which ones are non-priority.
Step 2: Determining Whether a DMP is Right For You
Once you’ve identified the types of debt that you have, you’re going to have to determine whether a DMP is the right solution for you or not.
Your potential DMP provider will help you with this before they start devising your payment plan.
If they feel that a DMP would not be the most suitable solution for you, then they won’t go ahead with your DMP.
You can determine whether or not a debt management plan is right for you or not based on a number of different factors.
As I mentioned earlier, the types of debt(s) that you have can play a huge role in which debt solution you choose. Obviously, a DMP won’t be a suitable solution for you if the debt you have isn’t covered by it.
Another important factor to consider is whether you want to become debt-free quickly or if you just want manageable monthly payments while someone else deals with your creditors. If it’s the former, you may want to consider some other solution as debt management plans tend to last a long time.
You also need to know the negative effects that a DMP has such as how it stays in your credit file for six years and negatively impacts your credit score as a result.
Step 3: Choose Your DMP Provider
Once you’ve determined that a DMP is indeed suitable for you, you can start looking for a DMP provider.
Please note that while many DMP firms charge fees for managing your DMP, many firms do it for free too.
If your provider charges a fee, these fees will be part of the monthly payment you make. As a result, the duration of your DMP could be longer compared to a provider who would’ve managed your DMP for free.
Keep these factors in mind when choosing a firm to manage your debt management plan.
Step 4: Determine Your Monthly Budget
Once you’ve chosen a DMP provider, you’re going to have to determine what your monthly payments towards the debt solution are going to look like.
In order to figure that out, you’re going to have to work out your budget. While this is something that you’ll go over thoroughly with your DMP provider, it’s a good idea to work it out yourself beforehand so you have a rough starting point for the repayment plan.
It can also help to bring documentation with you that proves your budget such as wage slips to prove your monthly income as well as bank statements to prove your monthly expenditure.
If you have priority debt(s) that you have to attend to separately, you should bring proof of those as well. For example, if you have to make a monthly payment towards your mortgage, it would help to bring a copy of your mortgage agreement.
Step 5: Write Your Payment Offer
Once you’ve determined what your monthly spare income is, you’re going to draft your payment offer that will be presented to your creditors.
Make sure to discuss the terms of your payment offer thoroughly. For example, you should definitely discuss interest and charges on your debts with your DMP provider to determine whether they will be frozen or not.
Some creditors may agree to freeze interest and charges when a DMP is put in place but not all creditors do so.
Try to strike a balance in your payment offer between what you can afford to pay and what will be acceptable to your creditors.
Once the payment offer has been drafted, your DMP firm will contact your creditors and present it to them.
Your creditors will assess the payment offer and either accept or reject it. If your creditors accept the payment offer, your DMP will be put in place.
Applying for a debt management plan can definitely get overwhelming but if you break it down into simple steps, it becomes manageable.
Ensure that you’re aware of the pitfalls of a DMP before applying for one.
I hope you found this information useful. Contact me if you have any further questions.
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