What is a DMP?
A Debt Management Plan (DMP) may help anyone struggling with debt or who may have arrears with money they have borrowed. The debts which are managed through a DMP will ultimately be paid off in full providing payments are maintained throughout its lifetime.
Your payments into a DMP are normally calculated on based on what you can afford. Charges and interest may be frozen or reduced but this will depend on your creditor. Payments to creditors may be reduced, which could, in turn, increase the length of time taken to repay outstanding debts or arrears to creditors.
Any communication you receive from creditors included on a DMP is normally managed by your DMP provider.
How does a DMP work?
You will start by undertaking an assessment with your advisor who will review your circumstances to assess if a DMP is right for you. Your advisor will ask you about the type of debts you have, along with undertaking a review of your income and expenditure.
Once completed you advisor will help you to understand what you are able to afford to pay towards your existing debts. This will take into account all of your essential bills such as rent or mortgage, utilities and council tax.
Your adviser will let you know how long your DMP will take to complete (approximately) based on the level of debts you have and the amount you are able to afford to repay. As you will be paying less than your contractual amounts, your debts will take longer to pay than your initial agreement with your creditors. If you can afford to pay more in the future, this will help to clear the debts at a faster pace.
Your DMP provider will then negotiate with your creditors with a view to agreeing your assessed monthly payments. You will pay one monthly repayment to your DMP provider who will distribute this to your creditors at the agreed rate. Your DMP provider may take a fee for their service, they will clearly advise you how much their fee is before you enter into the DMP.
Blackberry finance do not provide DMP’s but if a DMP is right for you, we will refer you to a provider who can set one up for you. We do not charge you a fee for giving you advice but we do accept a payment from your DMP provider. This supports our funding and enables Blackberry Finance to continue to provide advice to those in need.
How do I qualify for a DMP?
When your advisor reviews your finances and helps you to assess what your monthly ‘disposable income’ is, you will need to have at least £100 per month to be considered for a DMP (This figure may vary between DMP providers).
There are some debts which can not be included in a DMP. These include fines, tax, student loans, current council tax, selected benefits, gas and electric utility arrears and child support. If you have debts with any of the above you should consider seeking urgent advice.
Is a DMP right for me?
If you are unable to maintain your contractual payments with creditors but do have the ability to pay them at a reduced rate, a DMP may be an option for you.
Managing debts through a DMP will have a negative impact on your credit score as you are not maintaining your contractual payments with your creditors once your debts are managed via a DMP. Your credit report may display the debts being managed through a DMP and will typically do so until the DMP ends or your debt is cleared.
Debt Management Plan FAQs
What will I be charged?
The charges that apply will vary between DMP providers but you will typically be charged a monthly fee which will be deducted from the payment you make. For example, if your monthly repayment is £100 and your DMP provider charges you £30, the amount going towards your creditor will be £70 per month. Your DMP provider will clearly outline the charges you are expected to pay before you enter into the plan.
Can I get free advice?
Yes, there are several sources of free debt advice available to all consumers. For further information please visit MoneyHelper. The MoneyHelper is a free and impartial service set up by the government to help people to manage their money.
Will my creditor accept reduced payments?
Your DMP provider will negotiate with your creditors and request that interest and charges on each debt are frozen. This means that the money you pay will help to reduce the balance at a quicker rate than if interest or charges were continued to be applied. Please note that your creditors do not have to agree to the reduced offer and in some cases, interest and charges may still be added.
A creditor may decline to accept your offer if they believe that you are able to pay more than you are suggesting or you do not maintain regular payments.
How are my payments distributed?
Your payments to each creditor will be calculated on a pro-rata basis. This means that whatever money is left over from your essential expenses will be split between your creditors on a percentage basis according to the total amount that you owe to them.
Can I borrow more money whilst in a DMP?
We would strongly advise you against taking out any more credit whilst you are on a debt management plan. To do so would imply that you have money to spare – since lenders have to carry out an affordability assessment – and therefore it would be reasonable for creditors to refuse any reduced repayment offers, or cancel any reduced arrangements that are in place. Your creditors could also start reapplying interest and charges and contacting you directly about repayment of your debt.
Will I be contacted by my creditors?
Your DMP provider will liaise with your creditors and you should not have a need to communicate with them. However, you may still receive communication from creditors due to their own regulatory obligations to keep you informed about your account.