Debt management help is very useful for debtors who are undergoing a critical debt situation. Though it’s an informal agreement, you will get a term period of 3- 5 years to pay off the debt.
A DMP isn’t a loan and all you need to do is avail a registered DMP provider to make an agreement with the creditor.
The debt management company will help you in this regard and you can easily get rid of the debt. But sometimes, if you don’t pay the amount consequently then it may affect your credit score.
So, before getting involved with a DMP process, you need to know all the terms and conditions that it involves.
What Do You Mean by Debt Management Help?
A Debt Management Plan is an informal agreement between the creditor and the debtor.
When you undergo any debt then the debt management agencies help you to reduce the monthly interest and payments.
They make an agreement with the creditors on your behalf to negotiate the debt amount to an affordable and payable rate. Then, the creditors agree for a payment schedule for up to 5 years so the debtor can repay the debt.
You can pay the monthly instalments at an affordable rate once you get the debt management help. The DMP providers will make the payment to the creditors on your behalf but at first, you must pay them.
Pros of Debt Management Help Plan
These are the advantages that you may get from the Debt Management Plan as discussed below.
- Debt Management Plan provides credit card consolidation without having a loan.
- You can afford the monthly instalments and maintain your financial stability.
- It helps you to get more organized and punctual through the monthly bills.
- The creditors will stop calling and threatening you.
- It will also help you to get a good credit score if the monthly instalments are paid on time.
Cons of Debt Management Help Plan
Though you may get the advantages from the DMP or Debt Management Plan there are certain cons too, such as:
- As DMP is not a formal agreement some of the creditors may still contact you. They may force you to repay the remaining debt amount.
- The creditors may increase the rate of interest and hence, there may be an increase in the total amount.
- The creditors may not agree with you to reduce the amount or they may refuse to undergo any settlement process.
- You may need to go to the CCJ or the Country Court judgment if the creditors take any action against you.
Process to Implement a Debt Management Plan
When you go through the DMP process, you can choose a debt management agency to pay the debt amount. These agencies will work as a medium between the debtor and the creditor.
There are also many non-profit debt management agencies that do not charge any money from the debtor or creditor.
But, you must be careful about the hidden fees that the companies may charge for their service. Be cautious about the scammers or fraud agencies whose sole intention is to extract your money.
According to the Federal Trade Commission (FTC), there are some reputed and registered companies that you can trust. You need to remember certain points when you are undergoing a Debt Management Plan or DMP.
- The complete DMP process will take at least 30 to 60 months to repay the debt amount.
- You may be restricted by the organization to undergo any other debt while you are enrolled in this process.
- If the monthly instalments are late then you may lose the opportunity to decrease the debt amount. The interest rates will also not be considered for a decrease.
- If you delay in the debt payments then it might affect your credit scores.
Signing Up for A DMP Process
If you want to undergo a DMP process then your desired debt management agency may help you to sign up. Then, they will talk with your creditors to estimate the payment and interest rates after negotiating.
Once they determine the total costs including the utility bills, mortgages, living expenses they will make an agreement. In that case, you need to accept the criteria and conditions for making the agreement.
After that, you need to make the monthly instalments that to on time to repay the debt amount.
Once you enroll yourself in the Debt Management Plan you need to secure it. Hence, you can follow the below guidelines to check if the scheme is working or not.
- You need to take a note of the payment that you paid for your debt.
- You need to pay the debt agency every month.
- Check your monthly statements to verify if the agency is paying the bills every month or not.
- A DMP process is actually for taking care of the unsecured debts.
Steps to Get Debt Management Help
If you want debt management help then first you must know about the registered debt management agencies. You can do online market research to join hands with the best debt management companies that you might feel comfortable about.
There are mainly two types of companies in the market i.e non-profit and for-profit debt agencies. The non-profit organizations are reliable as they have their trained and registered credit counsellors. Most of the Counsellors are certified from the National Foundation for Credit Counseling.
When you go to any company then first check the monthly income statements accurately. You must include your bank statements, other bills( paid or unpaid) and all the information while seeking help from a company.
Expected Features from a Good Debt Management Agency
A good and reputed company should provide a better management service. So, you can take a glance at the step by step descriptions if you intend to grab a good debt agency.
- You need to prepare for an interview that the company may arrange to comprehend the details of your expenses.
- The counsellor may inquire about your total assets, utility bills, rent, credit card bills, etc during the session. They may verify your credit report (Soft pull of credit report) with you but it won’t affect your credit score.
- The counsellor may suggest whether there is a decrease in the expenses and increase your income.
- If you have a negative cash flow situation then the counsellor may provide a debt management scheme to solve it.
- The counsellor may be able to provide you with a good budget proposal that you want to send to the creditors.
- The organization is able to negotiate the debt amount and make a payment schedule based on the final terms.
- They might ask you about your bank information to get the monthly instalments from your bank directly.
- Once the creditor signs the agreement, you will get it via email within 3 to 5 working days.
- You will get the monthly payment statements from both the debt agency and the creditor. So, you can match the statements to check if the amount is credited or not.
So, if you find that the above description matches your preferred debt agency, you can seek their assistance. You can also contact them to ask their rules and regulations to conceal the agreement.
Debt Management Program
Once you choose your desired debt management agency then you can undergo a debt management program. You will get a maximum of 3 to 5 years to pay off the debt amount as per the conditions. But, if somehow you are out of the scheme then you won’t get any concession from the creditor.
The debt management agency will ask you to close all of your credit cards when you undergo the DMP process. Some authorities may only allow you to use one credit card at a time for emergency purposes.
You must contact your creditors to check if they agreed to the conditions of your debt agency or not. There are also some debt management options available including debt consolidation rule, debt settlement program, etc. If you have a really very critical situation then you can also go for a debt settlement plan.
Responsibilities of the Consumer and the Debt Agency
A debt management plan will only be successful if there is an important interaction between the creditor and the consumer. Thus, the non-profit debt agency can make an agreement and a payment schedule for the debtor.
Hence, it is very essential to play an important role in making a debt agreement.
Responsibilities of the Consumer
The debtor needs to perform these important roles while making a debt management plan with the creditor.
- The debtor needs to provide all the information about his income and expenditures.
- He needs to make the monthly payments on time.
- The consumer needs to check his monthly statements to track the progress.
- There may be legal charges for getting a new credit so he should avoid the new credit.
- He needs to get the advantage of taking free educational information regarding debt management.
Responsibilities of the Credit Counseling Agency
The debt management agency plays a vital role in securing the agreement between the creditor and the debtor.
- They review the financial situation of the debtor completely and provide them with all possible solutions to pay off the debt.
- The debt agency also provides them with information to understand the cause of debt. It is also helpful to prepare a budget so that they can avoid debt later.
- They interact with the creditors to negotiate and reduce the rate of interest so the debtor can afford the payments.
- The credit counselling agency works as a communicator between the debtor and the creditor.
- They accept the monthly payments on behalf of the creditor and provide status reports every month to the debtor.
- You will also get answers to all your questions from them regarding your existing debt management plan.
Responsibilities of the Creditor
Hence, you can take a glance at the roles of the creditor that are discussed below.
- The creditor must agree with the repayment schedule of the debt management company. If he has any problem then a request can be made to reconsider the payment schedule.
- He must be judicious while making a concession for the debt amount. It depends on you whether you will give concession on the interest rates and total debt amount or not.
- The creditor needs to provide an accurate status report every month to the debtor.
- He must send updates to the National Credit Reporting Agencies once the debtor repays the full amount.
Hence, when the three parties perform their duties effectively then the overall plan should be executed within 3-5 years.
Effect on Your Credit File
Even after getting help from the debt management agencies, it will affect your credit score. It may affect your credit file if you pay less than the minimum amount from your credit card.
The debt management plan is not included in your credit file but a reduction in payments may affect the credit score. If there are any court action or default cases against you then it will be recorded in your credit file.
Even if you miss any payments, it will be still there on your credit record for the next six years. So, it may get difficult in case you intend to apply for any other loan from other creditors. But, it will affect your credit record for only 6 years.
Which Debts Can You Repay with A DMP Process?
There are only non-priority debts that you can pay off with the help of a debt management plan. These include personal or bank loans, overdrafts, home loans, credit card loans, home credit debts, etc. You can also pay off catalogue or in-store credit debts, payday loans, money taken from your friend, etc using DMP. You must accept all terms and conditions set by your debt management agency to clear the dues.
Which Debts You Can’t Repay with A DMP Process?
The debt management help is for the non-priority debts only and you can’t pay off the priority debts using it. Hence, the priority debt that you can’t pay off via the DMP process includes Council tax, Court fines, TV license. It also includes child support and maintenance, income tax, VAT, Gas and Electricity bills, National insurance, mortgage, rent, etc.
Any insecure home loans, hire purchase agreements are also there that you can’t pay off using the DMP process.
Debt Management Help Advice
If you aren’t able to understand the complete debt management plan then you can refer to a debt advisor. You can also seek advice regarding a good and registered debt management company to pay off your remaining debt amount.
Free debt advisors may help you in this regard so that you can repay your debt via the debt management agencies. You can also take a glance at the important characteristics of a debt advisor:
- They will respond confidently regarding every small detail that you share with them.
- You may get proper advice from them to manage your expenses.
- They will not judge you for whatever situation you are going through.
- You might get suggestions from the debt adviser so you can deal with the current situation.
- They will ask you if you have entitled to all the available benefits or not.
DMP Company Shuts Down – What to Do?
If you find that your debt management company comes to a halt then you must immediately contact your bank. Further, you must stop the payments at once. You also need to inform your creditor with whom you make the agreement. If you can pay the creditor directly then you can also ask them to return the direct payment.
Alternatively, you can also ask them if there is any other payment plan available or not. You can also ask the creditor for the credit report to check if the previous payment was sent to him or not. If any of the payment gets refrained then it may affect your credit score laying a negative consequence. In that case, you need to go to the non-profit credit counselling agency to resolve that matter. You can also contact them over the phone to discuss the matter.