Many consumers have questions regarding debt management plans (DMPs) and we have provided the most common questions with their answers. Our team of debt management professionals will be happy to answer them and address your debt management needs.
Below are some of the most frequently asked questions about debt management plans. Will this affect my credit rating? Do I have to include all my credit commitments? Will this affect my partner even if we do not include them? Can I get a mortgage after a debt management plan? Will I lose my bank account? Will my employer find out? Do I have to sell my house? Contact us today for more frequently asked questions about debt management plans.
Can you explain a debt management plan to me?
A debt management plan, abbreviated DMP, is an informal agreement designed for a person who is having trouble making monthly repayments on debt. The debt management company negotiates directly with each creditor, negotiating a freeze on interest and other charges. The debtor makes one affordable payment per month to a debt management company. This payment covers all outstanding debts. The company then provides each creditor with its share of the monthly repayment received from the debtor.
The process continues, with the interest and charge freezes in place, until all debts have been cleared The debt management company requests that creditors not take recovery or legal action while the debt management plan is in effect, as long as the debtor continues to make monthly repayments. This company also processes and replies to creditor inquiries and letters. In exchange for its services, this company charges a fee.
Does a DMP cover all debts?
Only debts and arrears that are unsecured can be included in this plan. Unsecured debt is not guaranteed by an owned asset. Personal loans, store cards, credit cards, and bank overdrafts are typically unsecured. Car loans and mortgages are secured debts because they are guaranteed by an owned asset.
Do I qualify for this plan if I own a home?
Whether you are a homeowner, a tenant, or reside with your parents, a debt management plan may be the right solution for you.
During a DMP, will I continue to receive phone calls and letters from creditors?
Since a debt management plan is an informal agreement, it is not legally binding. Therefore, you will most likely continue to receive phone calls and letters from creditors. However, as creditors continue to receive regular payments after the plan is put in place, the calls and letters should not be as frequent.
Why did I receive a Default Notice after entering a DMP?
Since you are in default of the original credit agreement, affected creditors may issue a Default Notice. This protects their legal position and recipients often view the notice more negatively than warranted.
Am I required to inform my partner that I have entered a debt management plan?
Full disclosure with a partner is always a good idea. However, it is only required in this situation if debts are shared with that person or you require consideration of his or her income to support the debt management plan.
Can I verify that my creditors are paid each month?
You will still receive statements from creditors each month. Review these to confirm that interest and other charges have been frozen. Compare statements from one month to the next to verify declining account balances.
Is the debt management plan considered a loan? Does it involve a credit check?
A debt management plan is not classified as a loan and therefore, a credit check is not performed.
Will my credit rating be affected by a debt management plan?
Since you will not make the repayments outlined in contracts with creditors, the debt management plan will most likely affect your credit rating. Creditors may already have reported the debt to the credit reference agencies. However, making regular payments under the debt management plan should have a positive impact.
Am I able to change my monthly payment amount within a debt management plan?
The informal nature of this plan allows you to tailor monthly payments to accommodate your financial circumstances. You may increase or decrease your payments as necessary.
Am I required to cancel direct debits or change banks?
To avoid paying them twice each month, you should cancel direct debits to each creditor included in the debt management plan. Direct debits for payment of car insurance, utility bills, and other expenses not included in the plan may remain in place.
If your bank is also a creditor covered in the debt management plan, we recommend that you switch to a bank that you do not owe money. Otherwise, when you receive wage payments, your current bank may keep this money, using it to offset the money you owe them.
Are creditors obligated to accept offers of reduced payment?
No, a creditor does not have to accept a repayment offer that is less than the contracted minimum. That being said, a creditor is usually willing to accept an offer of reduced repayment if you can demonstrate that it is reasonable and that you are serious about repaying your debts. Once the creditor agrees to participate in the debt management plan, it must accept all payments, per the law.