What should you do if your DMP payments are too expensive?

Debt can quickly become unmanageable if your repayments are more than you can afford each month. A DMP could help to make repayments more affordable. This step is undertaken by considering your income and reasonable expenditure. After your reasonable expenses are accounted for, the surplus is paid to your creditors through the DMP. Obviously this appears to be a much more desirable situation than being stuck with debt repayments you cannot afford to pay, but looking after your money while in a DMP is a talent in itself.

The whole point of debt solutions is to address an issue rather than simply to create a different one. Frequently on our DMP forum we hear from individuals that are finding it hard to make their debt management plan payment. There are a few common reasons why people may end up in this undesirable situation, in this piece we look at these reasons and some practical solutions.

The first area of advice is do not commit to a debt management plan payment that is more than you can afford to pay. This seems straightforward doesn't it, but many individuals who are pressurised by creditors are susceptible to being talked into committing to a DMP that they don't really have the funds to afford. What could cause this to happen? All DMP operators stand to benefit financially from debtors paying a higher amount. Not all DMP advisors will misuse their authority as lots are responsible, however there are providers that will encourage you to repay a greater amount than you can reasonably afford for their own financial gain.

The next concern is to make sure your requirements really are fulfilled by the expenditure budgets that are set. It's normally quite easy to work out how much we spend on recurring monthly bills for example council payments, rent, mortgage, food etc. Uncommon costs such as school excursions, clothing, home and car repairs, haircuts and taxing your car are still necessities but could be harder to work out. Reputable debt management plan advisors will encourage you to hold some money to one side for these sporadic fundamentals.

Another thing to consider is how you'll plan for these irregular purchases throughout your DMP. You're unlikely to be able to get further credit on standard terms (though payday and door-to-door creditors may offer you finance with an unbelievable APR that causes more bother) so you should have an emergency fund in place. Create another bank account and every month deposit a payment. You can then take this cash to spend on occasional essential purchases. If you are strict about following this there will be money available when a pipe breaks or your children need new uniforms.

What if the unexpected occurs and you are subject to temporary income shock during your debt management plan? Unless you have a strong financial pot we recommend that you rank your payments e.g. rental payments or mortgage over your debt payments if you are made temporarily unemployed. This is because a debt management plan deals with non-priority debts. Your debt management plan supplier, if they're professional, should be able to work with your creditors to buy you a bit longer to find a renewed income source.

What can you do if your spending grows because you are making use of more credit? We don't advise you take out further loans once you agree to a debt management plan. However, if you find yourself in this predicament we suggest that you communicate with your debt management plan professional straight away. Any more debt accumulated throughout the debt management plan could possibly be added to the plan, however this will elongate the time it takes to pay the debt.

If you want your DMP to go as smoothly as possible you should be diligent with your finances and inform your DMP operator immediately if your circumstances change.

Could the Debt Management Plan Ruin My Credit Report?

Many people receive help with unmanageable debt payments via the debt management plan. A debt management plan can bridge the link between debt payments and what you can afford. Numerous creditors will be left short of the entire sum they are promised by debt management plan users who opt to take on the debt management plan. This will inevitably have a poor effect on your credit report. We consider the links between a debt management plan and your credit report.

Credit reports will not show whether you have enrolled on a debt management plan. Different debt management solutions such as IVAs will not afford you this bonus.

You could recognise that you have become involved with a single debt management plan; however it's in reality simply a collection of unconnected negotiations between you and your creditors to repay your debts at an achievable rate.

Despite the fact that a DMP on its own doesn't show up, your individual creditors will probably report you to the credit reference companies as you are not likely to fully pay off the total amount you have outstanding.

A start-up fee could be removed from the primary couple of payments you make in a debt management plan. This is fairly usual and might mean that your credit file will display un-met payments.

Occasionally your DMP group may not be able to put through your payments to the necessary lenders in due time. This may result in your credit report appear with late repayments on them. This is unfortunate but often unavoidable.

More rigorously, smaller or missing repayments could result in default messages getting sent out on a few or all of your debts in the duration of a debt management plan. This is quite likely to happen. Default notices will change your credit file in a bad way, yet in more positive light they will only be visible for 6 years and will be registered as being "satisfied" should you pay back the debt in full prior to the end of that six year period. A County Court Judgment (CCJ) is another plausible danger should one of your creditors decides not to accept the DMP and to go through legal debt recovery measures. A CCJ will also stay on your credit rating for 6 years.

What length of time will your DMP be live for?
It's necessary to have a handle on this, and your DMP group must give you an estimate before you go with them. Depending on the length of time you ought to think about considerations like getting access to transportation. Make sure you have a plan ready (and prepare if necessary) to replace your motor if you need it and it's unlikely to survive to the termination of your DMP.

When will your credit report begin to experience a return to normal?
This could normally depend on how quickly you're able to repay your debts and if you then take plans to rehabilitate your credit report. Older 'negatives' will not be visible on your credit report 6 years after they happened, and you may be able to make some positive use of credit later (even during your debt management plan) which serves as a good sign to future creditors.

A long-term DMP might not have the initial serious impact of a personal insolvency, but the flow of smaller negative credit blotches to your credit rating may take place across a prolonged time. Each individual will need to make their own choice regarding this based on their individual views and the debt management plan information that they receive.

What Puts People Off From Starting a Debt Management Plan?

Many people struggling to repay their debts often delay taking advice. This is a source of frustration for debt management plan advisers who recognise that during the intervening period, debts have typically escalated to worsen the overall situation of their client. This may result to an extension in the debt management plan term. In this article we’ll look at some common reasons why people delay taking debt management advice.

Perhaps the most obvious reason for a delay is the fear of losing access to credit. A debt management plan, along with most other debt solutions, will typically lead to restrictions in the ability to source credit in the future. This is of major importance to many people struggling with debt as credit can fund the costs of essentials such as food and fuel. Why is this so? Credit repayments are often made soon after payday; many people find that they have little cash left after their debt repayments are made with credit needed to cover the rest of the month.

The loss of credit may be a major concern. However, a debt management plan will result in a cessation of contractual unsecured debt repayments. Therefore cash will be left over to spend on essentials. The debt management plan budget will have prioritised cash for the basics before calculating the actual debt management plan payment. This negates the requirement for credit once the link between real income and real expenditure has been restored.

Negative creditor reaction is a further fear for those struggling to manage their household finances. Many people have heard horror stories about endless debt collection phone calls, legal threats, visits from bailiffs, loss of their home and so on. Creditors are realistic about their lending. They know a percentage of their clients will not be able to repay their debts and this is factored into their cost of lending. They also know some clients will require time and support to repay their debts. Most major creditors are supportive of a debt management plan where they consider the offer of payment to be fair and sustainable. A well-constructed and clearly appropriate debt management plan is likely to result in creditor support more often than not.

Due to adverse press coverage some people worry they’ll receive poor debt management plan advice and be left further out of pocket. There are some poor debt management plan providers operating as well as a few rip-off merchants within the industry. These issues can be avoided by refusing to speak with any debt adviser without professional qualifications (CertDR qualification for example) or any debt management plan provider who is not a member of the trade associations the Debt Resolution Forum or DEMSA. You should check their websites to make sure they have the appropriate consumer credit licence issued by the Office of Fair Trading.

The Debt Management Plan Forum (http://www.debtmanagementplanforum.co.uk/) is a place where those looking to deal with their debts, but who are still not quite sure debt management advice is the answer, can anonymously ask questions to industry experts. There are pages of information relating to debt management plans and the other alternatives available. Where visitors decide to seek advice the website advice team contains four professionally qualified debt advisers who will be able to work with you to establish a solution which fits your needs and circumstances.