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Debt management advantages and disadvantages

A debt management plan (DMP) could be one way to regain control of your finances. However, similar to other solutions, it has its advantages and disadvantages. We break these down below so you can find out exactly what a DMP can do:

 

Advantages of a debt management plan

 

A flexible debt solution

With a debt management plan, you only make one affordable monthly payment to your creditors. Furthermore, unlike more rigid solutions, this agreement is more informal and can be changed to suit your circumstances.

For example, if your wages are reduced, your monthly payment could be decreased. Alternatively, if you receive a bonus or come into money, you can choose to increase your payments so debts are cleared faster.

Freeze interest rates and charges

In most cases, interest rates and charges will be frozen as part of a debt management plan. This gives you time to focus on just repaying the amounts – rather than focusing on paying off additional costs.

A more private approach to debt

During some financial solutions, such as an IVA or bankruptcy, an individual’s name will be added onto the Insolvency Register. This is a legal database which can be searched by anyone. However, this will not occur as part of a debt management plan.

Stop creditor contact

If creditors agree to the debt management plan, any communications you have with them should significantly decline. From bailiff action to demands for payments, you can expect these to become non-existent or, at the very least, a rarity.

 

Disadvantages of a debt management plan

 

A debt management plan is not legally binding

A debt management plan is not a legally binding agreement. This means that creditors are not required to accept it. As a result, they don’t have to freeze interest rates and charges. Finally, they can also decide to stop the agreement

It only covers non-priority debts

Only non-priority debts can be included in a debt management plan. These include such expenses as credit cards, catalogues, and personal loans. For debts including mortgages, utility bills, and council taxes, you should consider an alternative financial solution.

Your credit rating will be affected

Your ability to obtain credit will be affected in the short term and possibly the medium to long term. Repaying debt over a longer period may also increase the repayment time and amount.

 

Is a debt management plan right for me?

A debt management plan is usually a good solution if you have multiple non-priority debts and have available funds – each month – to resolve them. However, before committing one way or the other, you should seek advice from a qualified financial professional.

At DFH, you will receive ongoing support and advice throughout the agreement. This includes pre-court and creditor correspondence advice. Furthermore, we will review your circumstances periodically to ensure arrangements stay in place and to determine if other debt solutions are more suitable.

To find out more information, get in touch with one of our specialists today. We’d be happy to discuss your circumstances and help you regain control of your debts.

DFH have been so friendly, helpful and so supportive to me. I would 100% recommend their service.

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