Debt Management Explained
A Debt Management Plan (DMP) is a method used in various countries for paying personal unsecured debts (which typically are out of control in the sense that payments are late and those due are taking too large a portion of income, or even exceeding it) that involves noting all the debts, assessing income and budget, and re-negotiating interest rates and payments with the lenders, based upon evidence that the result will be a higher likelihood of collection by the lenders due to the debtors more realistic monthly repayment.
FOR ADVICE ON DEBT MANAGEMENT PLEASE CALL 0800 074 6918 How Does A Debt Managment?
Debt managment plans are a managed informal arrangement with creditors - whether the debtor uses a free creditor sponsored debt management organisation or a fee-charging debt management company, accepting any terms of a debt management proposal put forward on behalf of the debtor is accepted always at the discretion of the creditors. A good debt advice service recognises this and will only suggest a debtor pays what they can realistically afford after their priority costs (mortgage, utilities, food etc) no matter what.
Fee-Chargering Debt management
Fee-charging debt management companies will often charge up-front fees as an 'admin' charge, and then will charge a percentage of the surplus that is paid to the creditor as a fee to the debtor. The larger the payment the debtor is encouraged to make, the larger the fee the fee-charging debt managementcompany receives. Also, there is the possibility that a fee-charging debt management company will enter a debtor into this kind of arrangement when it is not in the debtors interest and bankruptcy might be a better alternative, especially if the debtor has large debts and it would take them many years to pay their debts back this way. Naturally, the longer it takes to pay the debt back, the more money a fee-charging debt management company will collect - money that could be going to clear the debt itself if no fees were charged to the debtor.
What Kind Of Debts In A DMP?
People that use a debt management to eliminate their debt will typically only have unsecured debts such as personal loans, credit cards, bank overdrafts and store cards included in their plan. Secured debts or priority costs, like mortgages, car HP repayments, rent and utilities, are not subject to monthly payment reductions.
Credit Ratings under debt management
When someone participates in a debt management plan the likelihood that their credit rating will be damaged already is very high. It is not the debt management plan that affects the credit rating directly, but the inability of the debtor to meet their contractual payments that will be recorded on their credit file - usually in the form of a default notice. Any Court action taken by the creditor is also recorded on credit files.
Alternatives to debt management Please fnd below a decription of the main methods to clear debt in the UK IVA (Individual Voluntary Arrangement) to deal with the managment of debt If you have enough money left over after paying your priority creditors and essential expenses, you may be able to arrange an Individual Voluntary Arrangement (IVA). An IVA is a legal agreement with creditors (usually non-priority creditors) to repay your debts. This could either be in part or in full. The arrangement is negotiated, written up and checked regularly by an independent solicitor or accountant called an Insolvency Practitioner. Not all the creditors have to agree to an IVA as long as the creditors to whom you owe 75% of your debt agree. Bankruptcy to deal with the management of debt If you have a debt problem, you might have a number of options for sorting it out. One of these might be bankruptcy.
Bankruptcy is a court order that you can apply for if you are in debt. Once you have been made bankrupt, you don't have to deal with the people you owe money to (your creditors). An official called the Official Receiver takes control of your money and property, and deals with your creditors.
Remember, bankruptcy might not be your only option and it might not be the best one for you.
Remember also that someone you owe money to could make you bankrupt even if you don't want this. Protected Trust Deed to deal with debt management in Scotland A trust deed is a formal arrangement with your creditors, used in Scotland where a debtor grants a deed in favour of the trustee which transfers their assets to
the trustee for the benefit of creditors. Provided certain conditions are met, the Trust Deed may be registered as "protected", thereby preventing creditors from petitioning for the debtor's sequestration or taking any other steps to recover debts due to them. Financial and personal circumstances vary, so the consequences of signing a Trust Deed will be different for each individual or partnership. Remortgage to clear debt If you have enough money left over after paying your priority creditors and your essential expenses, you could think about taking out a loan to pay off your non-priority debts. This is called a consolidation loan. You can use a consolidation loan to pay off things like credit card debts and loans. It’s usually not a good idea to borrow more money to repay your existing debts as this can make things worse and cost more in the long-run. Many creditors ask for the new loan to be secured against your home. This means you could lose your home if you don't keep up the payments. However, if you can afford the repayments, have stable finances and are good at controlling your spending, this could be an option for you. Please feel free to call 0845 612 2626 for further advice on any of the above methods used to clear debt
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