Have you recently tried to get a debt management plan but aren’t sure which of your debts you should be listing in the agreement?
This guide sheds light on whether you need to include all your debts in a debt management plan. I’ve also added an FAQ section for further clarity.
Let’s get right into it.
What is a Debt Management Plan? – Repaying Your Debts
A debt management plan is an informal debt solution that makes it easier for you to pay back your debts. To put it simply, a debt management plan allows you to pay your debt back as monthly payments or instalments.
Since a debt management plan is not a legally binding procedure, it does not stop your creditors and debt collectors from contacting you and chasing you around for payment.
I should include that debt management plans can be very effective if you need help in managing your debts but don’t want to go the legal route.
A debt management plan is applicable on most types of unsecured debt, such as credit card debt, personal loans, and other unsecured debt.
Also, a debt management plan can have a significant impact on your credit score. If you keep missing payments on the money you owe, it could significantly harm your credit rating.
On the other hand, if you keep making regular monthly payments against the money you owe your creditors, it can eventually have a positive impact on your credit file, even if you’re dealing with troublesome debt, such as outstanding payments on your credit cards.
When you’re looking to get a debt management plan, you need to find a suitable debt management company to oversee and determine the terms of your debt management plan.
You also need to make sure that the debt management company you choose is regulated by the financial conduct authority and that the financial conduct authority recognizes the debt management company as a legitimate enterprise.
Once you contact a debt management company, you may be asked to provide details about your debts, such as the amount of debt on your credit card, the amount of money you owe, what payment you can afford to make to your creditors every month, and who your creditors are.
Your debt company will then formally draft a debt management plan and will contact your creditors on your behalf in an attempt to get them to agree to the terms of the debt management plan.
Do bear in mind that your creditors don’t have to agree to the payment plan, the monthly payment schedule, or the debt management plan at all.
Should I Include All My Debts in a Debt Management Plan?
The short answer is yes, you should include all your debts in a debt management plan.
You may be wondering why it’s a good idea to include all your debts in your plan, regardless of whether they are personal loans, credit card debts, or other unsecured loans.
The reason why is because if you mention all your debts in your DMP, your creditors are far likelier to trust you and be more flexible and accommodating during the active period of the DMP.
Several debt help agencies strongly recommend that you mention all your unsecured debts in your DMP. Since the aim of getting a DMP is to be able to pay your debts off as quickly as possible, it could serve you well to include all your debts in your plan.
Some creditors constantly monitor your credit file and all your financial activity as long as you’re bound by the DMP. If they see debts listed that they were not informed about, it could signal a lack of trustworthiness to them.
Additionally, if your creditors see you trying to hide some of your debts from them, they could interpret that as financially risky behaviour.
They could see it as you trying to hide your financial instability from them and thus may ask for additional charges and an increase to the amount of interest.
Also, make sure to list all your credit card debts in your DMP as well. If you don’t inform your creditors about all the credit cards you own and plan on using, they could potentially disqualify you from the program and you’ll end up losing the privileges of the DMP.
Additionally, some creditors may require you to not use credit cards at all as long as you’re bound by the DMP, so listing all your credit card debts and other unsecured debts will work in your favour tremendously.
Lastly, the good news is that there is no real limit on the number of debts you can include in the DMP. That’s good news, since you should be trying to let your creditor know about all the money you owe.
If your creditor sees that you’re earnestly trying to pay them back, they will be much more likely to agree to the terms and conditions of the DMP and even facilitate you when it comes to your monthly payments.
Things to Avoid When Dealing With a DMP
This section will address certain things that you should avoid doing and choices you should avoid making when you’re dealing with a DMP.
Let’s get right into it.
- Avoid making additional/extra payments to your lenders other than your basic DMP payments.
If you try to pay your creditors extra money other than that associated with your regular DMP payments, this could indicate to them that you have an additional source of money and that you have more money than they think.
Once they begin to suspect that, it could open up a new window of problems for you, such as tighter conditions by your lenders towards the loan amount, insistence that you pay them back earlier than what was previously agreed upon, or even them wanting to revoke the DMP.
Finally, if a creditor or debt collector is chasing you and trying to coerce you into paying them more than what was agreed upon in the DMP, you can choose to take legal action against them in court.
- Do not lose your cool
When you’re dealing with a debt management plan DMP, it can be easy to lose your cool and suffer from stress and constant anxiety.
Even if the terms, conditions, and requirements of the DMP seem daunting and overwhelming, I assure you that you can get through the process if you listen to your DMP provider carefully and follow the guidelines they lay out for you.
Other than that, make sure you don’t delay your payments and that you stay on top of any updates and changes to your program.
- Don’t search on the internet and expect to find a solution tailored towards you
The best thing that can help you in your situation is advice that is tailored to your specific situation, your personal goals, and the terms and conditions of your DMP.
The best person to give you that advice is your DMP practitioner. Make sure you stay in contact with your provider and ask for answers to all the questions and uncertainties you have in mind.
If you think searching the internet for generic advice will help your case, think again. Your provider knows the details of your situation, and they are who you should be going to for advice.
- Don’t sacrifice important utilities and bills for your DMP
Make sure that you’re not prioritising your DMP over important bills you need to pay and living costs that you incur.
Remember, if your DMP instalment is so big that you have to choose between important bills and necessities and your DMP, then they’ve been calculated wrong and you may need to consider getting an alteration to your plan.
If you feel like you need a different solution, don’t be afraid of letting your debt management company know about your situation.
How Does A DMP Affect Your Credit Score?
A DMP can either improve or harm your credit score, depending on a variety of variables, such as how consistent you are with your payments, your borrowing history, and your financial circumstances.
If you keep missing payments on your DMP, it will eventually impact your credit file to the point where lenders will start to see you as an unreliable financial investment. Moreover, as your credit score deteriorates, you’ll face a lot more financial constraints when dealing with your debt.
On the contrary, if you close all your credit cards, borrow responsibly, and keep making regular payments on your DMP, you’ll find that your credit score can start improving as well.
All in all, a DMP can both benefit and harm your credit file depending on how you behave as a financial stakeholder in the process.
Frequently Asked Questions – FAQs
What kinds of debt can’t be included in a DMP?
Secured debts, such as loans that are secured against a property of yours, can’t be included in a DMP.
Also, DMPs don’t cater to certain types of unsecured debt, such as student loans.
Can I go to jail for not being able to make payments on my DMP?
No, you cannot be jailed for failing to make payments on your DMP.
It will, however, have a negative impact on your credit rating and your ability to get loans in the future.
Is a DMP right for me?
If you have an unsecured loan that you know you won’t be able to pay off as a lump sum, a DMP could possibly be right for you.
If your financial circumstances are such that you find it much easier to manage your debt once you’re paying it back in monthly instalments, a DMP is definitely the right choice for you.
What happens if I don’t include all my debts in my DMP?
If you don’t include all debts in your DMP and your creditors find out, they could see this as shady behaviour.
Some lenders may interpret this as you trying to hide your debts from them so as to project a false sense of financial security to them and have them consider you a reliable financial stakeholder.
Others may interpret it as you trying to hide your financial instability, such as you not being able to make payments on the DMP because of your other debts, from them.
Either way, they won’t trust you as much and won’t be willing to cooperate as much as they would if you do mention all your debts in the DMP.
Will my creditors be more supportive of my DMP if I include all my debts?
Yes, it’s very likely that your creditors will be more supportive of your DMP if you include all your debts in the plan.
The reason is because they are likely to trust you if you show them the complete list of debts you owe and the amount of money you can afford to pour into the DMP. They may even be willing to cooperate on difficult financial matters.
Wrapping it Up
Most people who choose to get debt management plans are acutely unaware of whether they should be including all their debts in the plan or not.
This guide was intended to help you find answers to any questions you have in this regard and more.
If you need more debt advice, feel free to reach out.