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Frequently Asked Questions About Debt Management Plan

· debt consolidation

Find the answers you have been searching for concerning a debt management program (DMP). First, you need to know that this is an informal and flexible agreement about the repayment of loans between borrowers and unsecured lenders. The plan does not cover secured loans like mortgage and homeowner loans. Secured loans are those which are guaranteed by your property and so if you don’t pay your debt as per the requirements, your property may be confiscated.

Since you will be making lower payments, it might take longer than usual to pay off the loans. This might be costly in the long-run and it could hurt your credit scores. Here is more information on DMP.

Who qualifies for DMP?

Anyone struggling with repaying one or more unsecured loans should enroll for this program. Examples of unsecured loans include personal loans, credit card loans, overdrafts, utility arrears, catalog debts, store credit loans, etc. If you want a DMP to work for you, you need to have reasonable disposable income i.e. the amount that remains in your account after paying your due debts. This is because creditors want you to make reasonable monthly repayments. Your capacity to pay the debts is all that matters.

What costs are involved?

From your monthly payments, you will be deducted a certain fee such as 18.5%. This charge caters for the following services:

  • Determination of the entire cost and the length of the plan

  • Handling contact and correspondence with the creditors

  • Preparation of financial statements including the income and expenditure

  • Calibration of the reduced monthly installments and the initial proposals from the lenders

  • Finalizing the payment plan

  • Negotiations and communications with lenders

  • Expert advice and debt consolidation plans

  • Distribution of agreed payments

  • Regular review (after every 6 months) and monitoring of debt payment progress

  • Handling all the problems of maintaining the plan

What a DMP does is help you to negotiate with your creditors for lower repayments. You also get professional support on how to manage your finances so you don’t find yourself in a similar situation. Note that the creditors don’t always accept reduced payments. But DMP experts know how to talk to these creditors to keep the installments affordable. They make monthly repayments on your behalf and distribute appropriate amounts to the creditors minus the administration fees.

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