Definition of a debt management plan
“A Debt Management Plan (DMP) is a repayment plan for money problems which helps make unsecured debt repayments more affordable under a single payment. Normally a 3rd party (Debt Management Company like National Money) negotiates with your unsecured creditors to reduce your monthly payments to an affordable level and you continue to make repayments until you are debt free“
A debt management plan can be an ideal way to deal with your money problems such as your loans, credit cards, store cards and overdrafts, by turning them into one affordable, single monthly payment so that you can become debt free.
A debt management plan could be the best debt solution for you if:
- You have a minimum £1000 of unsecured debt (in your name), when all debts are added together.
- You have two or more creditors – loans, credit & store cards, and overdrafts.
- You have a minimum disposable (spare) income of £100.00 per month after paying all your essential living costs (for help finding this out try our budget calculator).
- You are struggling to make your regular repayments to your debts.
What National Money can do for you
We believe in service, so we don’t make you wait for an appointment, just call us, and after an in depth discussion about your money problems and personal situation, our experienced specialists work out how much you can afford to pay by looking at your income and outgoings.
You would make this payment to us monthly, on the date that is most convenient to you.
We will then send you the paperwork to approve and sign. Once the paperwork is back with us your dedicated administrator will negotiate with your creditors to reschedule and reduce your payments whilst asking them to freeze any interest and charges. We do this so that your monthly payment goes towards repaying your debt and not just interest and charges. We deal with all your creditor correspondence so that you don’t have to, and liaise regularly with your creditors so that they know what it going on and what to expect.
As part of our commitment to service, we review your plan every six months to ensure that any changes in your circumstances are taken into account and reflected in your statement of income and monthly outgoings. This helps both you and the creditors keep up to date with what you can reasonably afford to pay no matter how your life may change during your debt management plan.
A debt management plan with National Money will give you peace of mind and the certainty that your debts are paid on time with a payment you can afford.
It sounds like Debt Management does the same as a Consolidation Loan?
There is only one aspect where debt management and consolidation loans are similar; both require only one payment per month! There the similarity ends and it is important to understand the differences between them.
- A Debt Management Plan (DMP) is NOT a loan. A loan advances new money, and in the shape of a unsecured consolidation loan, these funds are supposed to be used to repay fully all of the other outstanding debts, including all interest etc, leaving you with one new loan which amounts to the total of the other debts now repaid, and therefore just one monthly repayment which covers capital and interest repayments over the term of this new loan. A DMP is a way of placing all of your existing debts, in their current state, with a third party such as National Money, who then handle these debts on your behalf.
- A Debt Management Plan does not require any further credit checks as part of the application, nor is it’s availability subject to passing a certain ‘credit score’ which is certainly the case for consolidation loans.
- Consolidation loans attract interest charges, typically at fairly high rates particularly if these are not lent by High Street banks where you currently hold an account. In addition, there could be additional charges levied where you may wish to repay earlier than set out in the original loan agreement; these can be high costs where the consolidation loan is sizeable. In contrast, one of the principle aims of a Debt Management Plan is to negotiate agreements with creditors to cease all interest and other charges in order that clearance of the debts is as quickly as possible.
- One of the biggest arguments against a consolidation loan as a means of resolving money problems is that debtors often forget to tear up their credit cards once the debt has been cleared from the loan funds. This means that, in addition to the loan debt, the availability of the continuing credit limit on the card can be too tempting to ignore, and before you realise it, you have compounded your debt problem!
- A Debt Management Plan payment arrangement is based upon what you can reasonably afford every month after a full review of your finances. However, a consolidation loan is based upon solely the information on the application form which does not look in as much detail at your household budget, and people can often sign up to a repayment programme that, whilst well intentioned, turns out to be too much for them to afford.
- With average unsecured debt for each household with such borrowing standing at just short of £18000 (per Credit Action 12/2010), consolidation loans can be large loans, with lenders regularly requiring some form of security for the loan. Typically this will be a mortgage over your house if you are a homeowner, and failure to repay the loan can therefore put your house at risk of being repossessed. Of course, if you are not a homeowner, the opportunities to obtain a consolidation loan are much more limited through lack of security to support the loan, and our experience suggests that tenants will not succeed with loan applications for more than £5000, which is of little help. A Debt Management Plan is based solely upon what you can reasonably afford to pay, and is available for homeowners and tenants alike, without any requirement for security.
- Consolidation loans are available ONLY to those who can prove they receive an income, and are employed. Applicants whose primary income is based upon receipt of benefits will not succeed with their application. In contrast, a Debt Management Plan is based upon what you can afford to pay from your household budget, whether your income is based upon employment or benefits – though there may be other options such as bankruptcy that may be a more appropriate route particularly for those in receipt of benefits only.
Our team at National Money will be pleased to discuss your own situation with you, and assist you in choosing the right solution – call us on 08448 247 260 for more information.
Call us on 08448 247 260 or ask us any Debt Management questions using the form below: