Debt Management Plans (DMPs)
A debt management plan, or DMP, is an informal agreement between you and your creditors aimed at consolidating any unsecured, non-priority debts you have into a single monthly payment plan.
Immediate Financial will go through the ins and outs of debt management plans so that you can decide for yourself whether or not setting one up is a good idea given your particular situation.
In this guide:
What is a debt management plan and how does it work?
A debt management plan is essentially a debt consolidation program that works by combing payments towards any non-priority debts into one, manageable monthly payment.
It can either be set up by yourself or by means of a debt management firm. If you do go through a debt management firm you will be charged a fee, the value of which will vary from firm to firm.
Your monthly income and outgoings are assessed and after your priority and secured debt payments are accounted for, a payment plan is worked out based on what you can afford with your remaining capital.
Once this has all been calculated, a proposal will be made, accompanied by any relevant financial documentation, offering to pay a single, fixed sum each month to be distributed accordingly among your creditors.
Importantly, unlike an Individual Voluntary Arrangement (IVA), a DMP is not legally binding. This means that your creditors are not actually obliged to accept the terms of your DMP, though doing so is often in their interest if the alternative is you defaulting on your debts and having them ultimately written off.
Priority and Non-Priority Debts
Debt management plans only apply to unsecured, non-priority debts.
These include things like personal loans, store cards, credit cards and overdraft payments.
Secured debts include things like mortgages, whereby your house is put up as security.
Priority debts include secured debts like mortgages as well as:
- Council tax bills,
- Utility bills and TV license fees,
- VAT and income tax payments, and
- Court fines.