What is a DMP?
A debt management plan, or DMP for short, is a payment plan that helps you to easily tackle your debts.
If you can not afford to pay a lump sum to your creditors as your loan payment, it can benefit you if you can set up a DMP.
A debt management plan is not a legal procedure, so it’s a great option for those of you who don’t want to go for legally binding insolvency solutions with a lot of risk and a larger impact on your credit ratings.
All in all, debt management plans make it easier for you to improve your credit record, deal with your debts better, rebuild your credit file, deal with a high interest rate, and pay your debt back as monthly repayments.
To get a debt management plan, you need to get in contact with a debt management company. Make sure that this debt management company is one that is authorised and regulated by the financial conduct authority (FCA).
What if I Miss a Payment?
On the off chance that you’ve just missed an installment, you have to contact your supplier right away.
If you live in England and Wales, missing an installment will mean your creditors won’t get the regularly scheduled installment they’re expecting, which may mean they can choose to stop co-working with your arrangement.
Conversing with your provider rapidly is the best way to set everything straight. They might have the option to haggle with your creditors to keep the arrangement going.
How Do You Know You Need to Update the Terms of Your Plan?
There are various reasons why you may discover you’re battling to make the installments on your debt management plan.
- An adjustment in your conditions, for example, losing your employment or long haul disorder;
- Your debts with your need creditors, for example, home loan or lease, have expanded, leaving you with less cash for non-need debts;
- You’ve assumed different debts since beginning your DMP;
- You’ve had some startling costs, for example, critical fixes to your home;
Whatever the explanation, in case you’re battling to make your installments or believe you will battle, you have to contact your DMP supplier right away.
Can you reduce your payments?
The sum you pay into a DMP doesn’t need to be unchangeable.
In case you’re battling to make the installments every month, find out if it’s conceivable to lessen the regularly scheduled installments.
Remember that if your installments are diminished, your debt may take significantly more time to pay off.
How to Cancel a DMP?
If you’re looking to cancel your DMPs, you’ll be happy to learn that it’s entirely possible.
In order to cancel your DMP, you need to contact your DMP provider and inform them of your desire to cancel the DMP.
You can ask your DMP provider to cancel your Debt Management Plan using our free letter template.
When your provider agrees with your decision, they will inform your creditor of your decision to cancel the arrangement.
Paying off a Debt Management Plan Early
This section addresses how and when you can pay a debt management plan off early.
In general, you are allowed to increase the payments you make on the arrangement if you can afford to do so.
Here’s two of the most common situations where you may want to increase your payments and try to pay your arrangement off before it expires in six years.
- Your income streams have increased
If this happens, you’ll be expected to contribute more towards your monthly payments.
When you enjoy a spontaneous rise in your income levels, you could be expected to contribute more towards your plan each month than you currently do.
- A big sum of money
If you suddenly happen upon a very large sum of money during your trust deed, you could be able to pay your debts back as a big sum.
If you’re able to pay your debt back in full, you definitely should. It will only be written off if you can’t afford to pay it for as long as the length of a debt management plan. It’ll also help your credit rating if you pay it off as soon as possible.
What occurs when a DMP is completed?
When a DMP is completed, you are no longer required to keep paying your debt back in the form of monthly payments. Your DMP payments will come to an expiration.
Depending on the terms of the DMP, your debt may have been paid in full or some portion of it may still be unpaid. If your situation is the latter instead of the former, you’ll be happy to know that all existing debt you owe is written off once your payments are over and the plan expires.
You’ll want to get to improving your credit score and rebuilding your credit file as soon as possible.
Since your credit report is largely dependent on the payments you were making on the DMP, now you’ll be able to get to improving it.
Also, as general advice, you should be aware that even if you pay your DMPs off before their expiration date, they’ll still be listed on your credit report.
So even if you complete the DMP by completing your payments before the specified duration, it will still show up in your credit history till it expires.
This can be a nuisance, since lenders may want to look at your credit report and credit rating before they decide to loan you. If DMPs and other debt solutions are listed in your credit history, they may not be as willing to loan to you.
What is a Full and Final settlement offer for a DMP?
A full and final settlement is one where your creditor agrees to take less than the entire loan amount that is owed to them.
Instead of you having to keep making reduced payments in an attempt to deal with your personal loan or credit card loan, you can have your lenders agree to accept a partial payment.
Then, you’ll be having them agree that they won’t be taking any action to recover whatever remains of the initially agreed-upon amount.
A full and final settlement can be very effective when you’re struggling to pay the full amount towards your plan.
Life After a DMP
It is possible that your credit rating may have gone down while you were in the arrangement, over a period of six years.
Here’s what life after a DMP would look like: even though the arrangement itself would not appear on your credit file, any late payments or missed payments may have been duly noted by lenders.
Details of your arrangement will stay on your credit file and keep affecting your credit score for six years after the date it came into existence. Your credit file can suffer as a result.
Also, the information may have reached credit reference agencies, which can make it harder for you to find suitable lenders. Your credit file and credit score matter a lot in this regard.
Life after a debt management plan can be rather refreshing, though. You no longer have an active debt solution looming over your head, especially if it’s a debt solution you were struggling with.
You no longer have to keep up with payment after payment. You can get credit cards and engage in other financial matters with less pressure than before. You can build connections with people and revive your financial image in the eyes of several people in the business world.
All in all, there’s a lot in store for you if you do it right.
- What happens to my debt management plan if I die?
When you die, your plan and your debts don’t just go away.
Generally, your family and your descendants are responsible for making payments on the plan and paying your debts back. Any missed payments may be taken from a property you owned or an asset you owned to make sure that your creditor is paid fairly.
- What kind of debts does a DMP cater to?
A DMP caters to most types of unsecured debts, such as personal loans, credit card debt and other unsecured loans.
It does not cater to secured debt, debt that is secured against, for instance, your property.
- Is it possible to pay off my DMP early?
Yes, the DMP may be paid off early.
You may be looking to use it to pay your DMP off early to free yourself from the burden and worry of making payments every month if you have come across a large amount of money, such as inherited money, money from a house, or a large bonus at work.
- Is a debt management plan a legal procedure?
You are not legally required to stay committed to the DMP throughout its active period.
However, even though a DMP is an informal procedure, there are a few formalities involved, such as a DMP agreement form.
You may be asked to sign a DMP agreement form that gives your company the right to contact your lenders on your behalf.
Wrapping it Up
I hope this article helped you get an idea of what a debt free life, one that starts when your debt management plan completes, looks like.
You will need to make a few lifestyle changes to adapt, but I’m confident you’ll find peace and contentment in your newfound circumstances, such as how you should deal with your lenders and regularly check your credit history.
If you need any more debt advice, feel free to reach out.