Add new debt to a Debt Management Plan
A Debt Management Plan (DMP) is an informal agreement with your creditors. As such there is nothing to stop you adding a new debt at any time. You may need to do this because you missed out a debt at the time you set up the Plan. Alternatively you may have borrowed more money during the Plan which you are now struggling to repay. The process of adding the new debt is relatively simple. You just re-divide your monthly payment between all your creditors including any new ones. However before you do this you need to understand the potential consequences.
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What happens if you add a New Debt to a Debt Management Plan?
If you add a new debt to your Debt Management Plan but continue to pay the same amount into it each month the original creditors will start receiving a smaller amount. Depending on the size of the reduction they will not react well to this. They may take the view that you have broken your agreement and restart their collections actions against you.
Your original creditors may also start reapplying interest to your accounts where previously this had been frozen. One way to avoid this situation is to increase the amount that you pay into your Plan. This would then mean that you still pay the same amount to each of the original creditors. However you may not have the money to do this.
DM4U Tip: If you are unable to increase your Plan payment you should always try to minimise the reaction of your creditors by renegotiating lower payments with them in advance. If you explain you had a financial emergency and had no option than to borrow more money they will normally be prepared to accept the reduced payment offer. You are likely to get a more favourable outcome by using this approach rather than simply reducing their payments without warning.
How can you avoid getting a New Debt during a Debt Management Plan?
Generally speaking you should not take on new debt when you are in a Debt Management Plan. However if you have a financial emergency you may feel you have no choice than to do so. You might decided to borrow from a Payday lender as they may still lend to you despite your credit rating.
However there may be an alternative to borrowing more if you have a cash crisis. This is to agree a payment holiday with your original creditors. A payment holiday allows you to put your normal Plan payments on hold for few months. You can then use the money you save to pay for your financial emergency. Once this is over you then start your payments again.
You must not take a payment holiday without first agreeing this with all of your creditors. If you simply stop paying them without warning they will restart their debt enforcement procedures against you. However if you explain the reason for needing the payment holiday and agree it with them in advance they should understand. As long as the payment holiday you need is not too long and your explanation is reasonable they should agree to help you and not start adding additional interest and charges to your accounts.
What if your Debt Management Plan service provider refuses to help you add a New Debt?
As soon as you realise that you are struggling with a new debt you need to speak your debt management service provider and explain the situation. If you are using a commercial company they will normally try to help you. They will not want to risk the failure of your Plan and thus lose their management fees. They will either agree a payment holiday with your creditors for you or include the new debt into your plan and manage the old creditors reaction to the reduced payments.
Unfortunately some debt management service providers may refused to help you add a new debt. They may argue that you have broken your agreement with your original creditors and as such they can no longer work with you.
If your service provider will not help you then you have the option of changing to another debt management company. Alternatively you can consider managing the Plan yourself from now on. You could also review your entire situation and consider an alternative debt solution.
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