Debt management plan advice from

15th of April, 2011 Bookmark and Share
Consolidating debts into more affordable payments is a simple way of handling monetary worries. advises customers on the pros and cons of doing this with a debt management plan (DMP).

Secured debts such as council tax, utility bills and mortgage arrears should always take precedence in a DMP, and are known as priority debts. The first step to coming up with an effective plan is calculating how much of the person's monthly income is used for these bills and the cost of living. Next, the DMP tackles unsecured debts, which do not put the person's home or belongings at risk of repossession.

The person's income and outgoings will be considered before an affordable monthly repayment figure is agreed on. However, this figure also needs to be approved by the creditors, so the debt management company usually approaches them with an offer.

Depending on the amount and duration of the person's debt, and the identity of the creditors, the debt management company may also request lower interest and charges. Unfortunately, a freeze like this may not be allowed until the person has maintained punctual repayments for a few months.

As a result, interest and charges alone can exceed the person's affordable monthly payment. This is one of the most important things to consider when looking for a debt management plan; in the short term, debts could increase, so it should only be thought of as a long-term plan if an interest freeze is agreed.

All the available debt solutions should be considered before the person makes a decision. If they are not eligible for an IVA or are unwilling to file for bankruptcy, a DMP is usually preferable. Bills can also be tackled with debt consolidation loans, which are tailor-made for those who do not want to accumulate more debts through high interest.

Creditors often look favourably upon those who take out a DMP, as it demonstrates a real effort to repay debts and get back on track.

Rachel Hand is a trading name of Ask Finance Ltd, a wholly owned company of the Harrington Brooks Group Ltd. through Ask Finance Limited is licensed under the 1974 consumer credit act, who issue guidance to ensure that our advice is ethical and professional. We are covered by the data protection act which protects client confidentiality.