Debt Management Plan
Considerations:
Credit rating
The key consideration to think through in deciding to use a debt management plan as a solution to a debt problem is the effect on your credit rating.
Where an individual moves onto a debt management plan a lender will record this fact on a credit file.
This will have negative consequences for future borrowings.
The extent of the negative effect does depend on whether the credit file identifies you as being in arrears or whether they will move your file to default.
There is a material difference between the two status codes.
A default will have a more negative effect in the long term.
Freezing interest and charges
The second major consideration to understand is whether the lender will be prepared to freeze all interest and charges.
In freezing interest it is also important to understand the length of time for which interest and charges will be frozen.
Some lenders will freeze interest until the outstanding payment reaches a certain value and start recharging.
Others will be prepared to freeze interest for the duration of the agreement.
Lump sum settlement
A further consideration which is worth thinking through is whether it is possible to offer a creditor a reduced lump sum in exchange for writing off all interest, charges and outstanding capital.
The difficulty with this is of course raising the capital but if possible this approach can be used to wipe off very significant amounts of the outstanding capital.
Timescale
The length of time you will have to pay the debt management plan is a final consideration.
If you are likely to still be paying off a debt in over 7- 10 years it is possible that a debt management solution is not the right solution.
The government agrees that debtors (i.e. You) should not be pursued endlessly for debts and will introduce debt relief orders to help this situation.
Use our FREE Credit Report to see if you are eligable for an IVA.
DMPs: Main
DMPs: Criteria
DMPs: Considerations
DMPs: Costs
DMPs: Merits