Add payday loans to an existing debt management plan
If you have taken new payday loans while you are in a DMP, you may decide you need to add these to your Plan. However there are a number of implications to consider.
Included in this article:
- Can new Payday Loans be added to an existing DMP?
- Is it fraud to take new Payday Loans during a DMP?
- Will your Debt Management Company help?
- How to avoid borrowing more during a DMP
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Can new payday loans be added to an existing debt management plan?
It is possible to add new Payday Loans to an existing Debt Management Plan (DMP). The process is the same as adding any other debt to the Plan. The amount you pay into it is just divided between more creditors.
After adding the new debt each of the original creditors will be paid slightly less. Generally speaking this will not cause a problem as long as the change in their monthly payments is not too great.
However if the new loans you have added are relatively large the payments to the original creditors will significantly reduce. They are likely to be unhappy about this and may start adding interest and charges to your accounts once again.
When adding new debt to a DMP if possible you should also increase your monthly payment. This will avoid any negative reaction from the original creditors as the amount they receive will stay the same.
Is it fraud to take new payday loans during a DMP?
When you try to add Payday Loans to an existing DMP the loan company may suggest you have committed fraud. This will be worrying. However in reality they would never take this any further.
The loan company is just trying to scare you into paying them. A Court would almost certainly throw out any case brought. They would simply say the lender should have done better checks about your ability to repay.
The court would be on your side because your intent was to repay the debt. You cannot be blamed for the loan company’s bad lending decision.
Payday Loans companies are under pressure from the Government to treat customers fairly. As such despite what they may initially say they will normally agree to include their debt in your Plan.
Will your Debt Management Company Help you add Payday Loans?
You may be using a debt management company to manage your DMP. If so they may not be happy that you have borrowed new Payday loans. In the worse case they may say they are no longer able manage your Plan.
This is particularly likely if you are using a charity such as Step Change. They could tell you that they are now unable to continue working with you. They will say it is because you have broken the terms of your agreement.
If your debt management company refuses to add new debts you could start a whole new Plan with a different provider. Alternatively you could manage the Plan yourself or consider a different debt solution.
If you are using a commercial debt management company they will often be prepared to help you add new debts. They want to carry on working with you so they can continue charging their fee.
How to avoid borrowing Payday Loans during a Debt Management Plan
Your Debt Management Plan is likely to last a number of years. During this time it is quite common to have a financial emergency. Being prepared can help you avoid having to borrow Payday loans altogether.
The way you prepare is by saving. If you can put away a small amount each month you will gradually build up money you can fall back on when you need it. However saving during a DMP is not easy.
If you are unable to save, an alternative way to manage a financial emergency is a payment holiday. This is where you stop your Plan payments and instead use the money to pay the unexpected expenses.
It is important to agree a payment holiday with your creditors before you take it. This will protect against them restarting their collection activities. If you are using a debt management company they should help you with this.
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