Is a Debt Management Plan (DMP) right for me?

A typical Debt Management Plan (DMP) will consolidate all your unsecured debts into a single and more affordable monthly repayment. This should not be confused with the more formal and more conclusive process of an Individual Voluntary Arrangement (IVA).

In a Debt Management Plan (DMP), your debts are repaid to creditors on a pro-rata basis over an specified period of time. This payment is determined by the amount you can reasonably afford after your normal cost of living has been deducted from your income, and will be presented to your creditors by a debt management company. Creditors are not obliged to agree to the Debt Management Plan, but they are more likely to accept it once they have been made properly aware of your true position.

Once your creditors have agreed to a DMP, it is your responsibility to continue paying the agreed payments to your administrator. The administrator (normally the debt management company who drafted the plan) will then ensure that these payments are distributed promptly, on a pro rata basis, to all creditors until the plan has been successful completed.

Each DMP should be regularly reviewed, especially to consider whether creditors would accept early settlement. Once a DMP is completed, you will be considered debt free and able to make a fresh financial start.

Before you take out a DMP, make sure that you use a fully licensed debt management company that adheres to OFT debt management guidelines, Easierdebt is such a company. Establish any charges that you will have to pay for their services.

You will pay to us your first two monthly payments on the dates specified. This will be our programme set up fee and not paid to creditors.
We have a separate account into which we will pay the monthly payment amount. This is for the sole purpose of making payments to creditors in accordance with the programme. This account is called the Client Account. Payments are made to creditors 5 days after funds are cleared.  We shall be entitled to pay the monthly management fee from your monthly payments prior to payment being made to your creditors. We shall then make payment to creditors in accordance with your programme provided that we have sufficient funds from you.

Each month we will charge you 15% of the agreed payment amount or a minimum of £30.00. All fees charged are VAT exempt.

Please note that a Debt Management Plan may:

• Lead to increase in the sum to be repaid
• Lengthen the repayment period
• Additional fees or interest maybe charged by your creditors
• Your credit rating will be affected for up to 6 years, if not already so.

Debt Management Example

Mary is a single mother from Manchester with a two year old daughter. She works 16 hours a week in a shop and claims benefits. She built up credit card debt whilst she was pregnant and once the baby was born on necessities.

Before Her Debt Management Plan

Mary owed money to 3 lenders for credit cards, see the figures below:

• NatWest – £4,550 with a minimum payment of £136.50
• Lloyds TSB – £2,130 with a minimum payment of £63.90
• Barclays – £890 with a minimum payment of £26.70

Her total debt was £7,570, she was trying to pay a minimum of £227.10 per month and even at this rate it would take her around 14 years to clear her cards.

Unfortunately, she was regularly unable to afford to pay the minimum meaning that she missed payments and was charged for this, at up to £30 a time, this was increasing her debt each month rather than allowing her to reduce it.

During Her Debt Management Plan

After contacting us, we assessed her disposable income (DI) at £150 per month, this is what she pays each month into the plan, she is able to afford this as it is based on her circumstances, not what she owes.

• NatWest is paid £69.00 based on 60% of total debt
• Lloyds is paid £32.20 based on 28% of total debt
• Barclays is paid £13.80 based on 12% of total debt
• Fees come to £35

Additionally, as we were able to freeze the interest and charges with all three lenders, the amounts that are paid are paid directly off what she owes. In this case we were also able to reduce the term to 5 years 6 months.