Debt Management Plans – FAQs
Debt Management Plans – Frequently Asked Questions
- Is a Debt Management Plan right for me?
- How do I start a DMP?
- How long does a debt management plan last for?
- How much does a debt management plan cost?
- How do I make payments on a debt management plan?
- My circumstances have changed. Can I stop the debt management plan?
- Will the creditors stop demanding money if I am in a debt management plan?
- Who tells the creditors I am following a DMP?
- Will a DMP affect my credit rating?
- Will I still be able to apply for credit?
- I have entered a DMP. What happens now?
- Is my home still at risk if I enter a DMP?
- Does a DMP freeze interest or charges on my debt?
- Will my creditors accept a DMP?
- Can I include all my debts under a DMP?
- Are there any other debt solutions that may be suitable for me?
- Is a DMP another form of loan?
- Are there any other debt solutions that may be suitable for me?
1. Is a Debt Management Plan (DMP) right for me?
A DMP is suitable for people with a minimum debt of £2,000 and can be helpful to individuals who:
- Have the funds to make regular payments to clear their debts – usually a minimum of £100.
- Have unsecured debts they are unable to pay.
- Do not qualify for an IVA because the debt is not significant enough.
- Have significant assets they do not want to lose the equity in – which would need to be surrendered under an under an IVA.
- Do not want their partner/spouse knowing about their financial situation.
- Believe they have the discipline to pay their debt in full without needing the strict regime of an IVA.
- People who are overwhelmed by their debts and would like help with structuring the payment of them.
After initially working out your disposable income through a detailed income/expenditure analysis, we then create a tailor-made debt management plan to suit your individual needs – leaving you to pay a one-off affordable monthly payment. We then pay your creditors each month on your behalf on a pro rata basis.
3. How long does a debt management plan last for?
This is largely dependent on how much you owe and how much you can afford to repay each month.
4.How much does a debt management plan cost?
With a 1Stop Money debt management plan, you only pay what you can afford, as a single monthly payment.
5. How do I make payments on a debt management plan?
You can pay in any manner preferable to you, although the easiest way is by standing order direct from your bank account. This method means you do not have to remember to make the payments – they are automatic – thus eliminating the danger of missing a payment. It is also possible to pay by cheque, paying in slip or at the counter in a bank, post office or building society.
6. My circumstances have changed. Can I stop the debt management plan?
Yes. As it is a less restrictive form of debt management, you are able to stop or start it as you require.
7. Will the creditors stop demanding money if I am in a management plan?
Once you have entered one your creditors are informed. They then must cease demanding money – by letter or phone – unless you fail to meet your payments. Any creditors you have NOT included in your plan may still seek to contact you. Any contact you receive from creditors should b e directed to us so we can deal with it on your behalf.
8. Who tells the creditors I am following a DMP?
You will receive the full support of the 1Stop debt management team, including having your payments passed to your creditors for you on a pro-rata basis, as well as the initial contact with your creditors to negotiate lower repayments and reduction or freezing of interest and assuming full responsibility for liaising with your creditors for the duration of the plan.
9. Will it affect my credit rating?
Creditors have their own policies on reporting participation in a DMP to a credit bureau. Some creditors will reference that your account is being paid through a plan, with a bureau such as Experian, Transunion or Equifax. Many of these are on record stating that they will not deduct any points from your score for being in one.
If you have late payments prior to the start of a plan, those payments cannot be erased, but many creditors will ‘re-age’ the account and begin reporting it as “on-time” again after the third consecutive monthly payment. Most people seeking a debt solution are already in significant financial difficulty, and are likely to have a bad credit rating already. Your credit scoring usually will be unaffected, if payments are made on time. The sooner you begin to repay your debt, the quicker your general credit rating will improve.
10. Will I still be able to apply for credit?
Yes, essentially you can, but it is really inadvisable to take out more spending on credit as this is usually what initially started most debt problems. Also it is not permitted to include any debts in your debt management plan that have been incurred after the arrangement began.
11. I have started a management plan. What happens now?
Your creditors will be informed and providing you meet all repayments as due, you will receive no further action from them.
A Debt Management Plan is not legally binding so you cannot be forced to sell your property. Therefore your home will not be at risk.
13. Does it freeze interest or charges on my debt?
We have already established long-standing relationships with the vast majority of creditors, which helps us to negotiate the freezing of further charges on your debt. Most creditors now realise that accruing more charges and interest to the account of someone in debt will reduce their chances of receiving any payment at all.
14. Will my creditors accept a DMP?
As it is not a legal procedure, 1Stop Money cannot guarantee that your creditors will accept the proposal put forward by your debt management company, but we have a 100% success rate to date of freezing interest at 0%. Essentially, if the agreement is beneficial to both parties then it is likely to be accepted.
15. Can I include all my debts?
A debt management plan can cover non-priority debts – usually unsecured loans, credit cards, student loans or bill arrears – but it will not cover priority debts like your mortgage payments or any other secured loans. With a secured loan, your home or other assets, depending on what you secured your payment against, may be repossessed and sold if you fail to keep up with the repayments, so such debts are not included on a DMP.
A debt management plan can, however, cover arrears on secured debts – as well as arrears on utility bills, tax and phone bills. It may not cover secured or other priority debts directly, but your monthly payments will be made to fit around these, in order for you to be able to able to afford all your essential expenses.
If you want to enter a DMP but are unsure if all your debts can be included, a member of the 1Stop Money team will be happy to inform you of the facts.
16. What is the difference between a secured and unsecured debt?
The easiest way to understand the difference between unsecured and secured debt is to work out if your creditor can take away an item of your property in the event are not able to pay them.
Examples of secured debts are mortgages and car finance.
17. Is it another form of loan?
A DMP is not the same as a loan. It is a way of consolidating your repayments into one affordable payment without further borrowing. Like Debt Consolidation without the loan.
18. Are there any other debt solutions that may be suitable for me?
Yes – depending on your circumstances, you may wish to consider debt consolidation, or an IVA or bankruptcy as your debt solution.
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