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Taking out a personal loan, a credit card, or any other debts, isn't a bad idea. They can enable you to purchase things you normally wouldn't be able to afford, start up your own business, furnish your house, and many other things but once you're finding it difficult to repay your debts, that's when it becomes a problem.
A Debt Management Plan (DMP) is one of many ways of dealing with those debts. Debt consolidation loans are another popular choice for debt management in the UK.
In this article, we'll cover:
Debt Management Plans are a type of informal debt solution. Informal in this instance means it's not legally binding. So your creditors aren't legally obliged to keep to their terms or accept the agreement. However, a well-thought-out Debt Management Plan should be accepted by your creditors if you're more likely to repay your debts than without it.
Debt Management Plans work in a similar way to other debt solutions. You'll work with an advisor to create a realistic debt repayment plan, working out an affordable monthly payment for you. Then they'll contact your creditor to propose the new terms - the idea is to turn your payments into one affordable monthly repayment. They'll also negotiate with your creditors to get your interest rates and charges frozen.
How much your monthly payments would depend on your personal circumstance.
However, the whole idea of a DMP, is that you'll be paying reduced payments aka less than you were paying before. Reduced monthly payments mean you'll have more money left over at the end of the month, but could mean it takes you longer to repay your debts.
It's important to look at the pros and cons of debt plans before you choose a debt solution.
The benefits of a Debt Management Plan:
Debt Management Plans can be a good idea if you're dealing with unsecured debts and can afford to pay back an amount each month but there are cons of a Debt Management Plan as well.
The risks of a Debt Management Plan:
The easiest way to apply for a Debt Management Plan (DMP) is online with a debt management plan provider. The debt management company will help you set up the plan and implement it for you, however, they will likely charge a setup fee and they may charge a handling fee for every monthly payment.
Make sure you research the DMP provider before you choose who to go with.
Any type of debt solution, including a Debt Management Plan, will affect your credit report.
However, if you're missing payments or defaulting on your current debts then this will already be affecting your credit rating. A DMP or any other type of debt solution shows lenders that you're trying to repay your debts to the best of your ability.
While this doesn't mean your credit file will immediately improve, it does mean over time, if you're meeting the agreed payments on time and in full, then this should be reflected on your credit file.
There are many different types of debt solutions available to suit different financial situations.
Some of the other popular debt solutions are:
Ultimately, the idea of a debt solution is to turn multiple monthly payments into one monthly payment to make it easier and more affordable to pay.
Which debt solution to choose will depend on how much debt you have and how much you can afford to pay back each month. They all come with different benefits and risks.
Before choosing what to do, it's best to seek out debt advice. Whether that's from a DMP provider, another debt solutions company, or a money advice service - they'll all be able to give you expert advice to steer you in the right direction. Every situation is different so it's important to find the most suitable debt solution.
Whether or not a Debt Management Plan (DMP) is better than a Consolidation Loan depends on your personal situation. Both only help with unsecured, non priority debts and enable you to change your monthly payments to a reduced amount.
What's the difference between a Debt Management Plan (DMP) and a Consolidation Loan?
Key points to take away:
If you’re looking to consolidate several debts from £5000-£75,000 it might be best to consider a Debt Consolidation Loan. They’re designed for larger sums of debt, and to reduce your monthly repayment.
Fill in our online application form today to see what your monthly repayments could be.
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