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Is interest stopped in a Debt Management Plan

Is interest stopped in a Debt Management Plan

Most creditors will stop charging interest if you have a properly managed debt management plan. However they are not legally obliged to do so.

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How to ensure interest is frozen in a Debt Management Plan

Your creditors are not under any legal obligation to stop interest or charges if you start a debt management plan (DMP). You therefore need to make sure you give them a good reason to do so.

The best way of doing this is to make sure that you pay as much as you can into the plan each month. Your living expenses should be reasonable and follow the guidelines that creditors will expect. You must be ready to justify any unusually high expenditures.

You must also honour the agreement and make your payments on time. Regular sustained payments will help build up a level of trust with your creditors. This will give you the best chance of convincing them to help you in return by freezing interest.

It is vital to ensure interest is stopped on all your debts when you use a DMP. If it is not the account balances will reduce far more slowly or may even increase and the plan will last far longer.

How long will it take for the charges to stop?

Your creditors are unlikely to freeze their interest charges from the first month that you start paying into a DMP. They will probably wait for 2-3 months to confirm you are maintaining your payments.

Most banking creditors are bound by the rules of the Financial Conduct Authority (FCA). This means they must treat customers in financial difficulty with forbearance which includes considering suspending, reducing or cancelling further interest charges.

As such once they are comfortable that you are keeping to your end of the bargain, they should start to help you.

After a few months of paying a DMP, one or more of your creditors may pass your account to a debt collection agency. If this happens don’t worry. One of the advantages is that no further interest will then be added.

What can you do if interest is still being added?

One of your creditors may simply refuse to freeze their interest. If so it is probably a waste of time arguing with them as they are unlikely to budge. In this situation the best way to deal with the problem is to try and pay this debt off early.

You are allowed to pay off one creditor and leave the rest in the plan if you want. To do this you will first need a cash lump sum. This could come from either saving or borrowing. You can then make an offer to settle the debt.

If you have been in your plan for 6 months or more, your creditors will often accept an offer of 50% of what they are owed . In return they will write off the remainder of the debt. As a result your DMP will be paid faster as the remaining creditors will get a bigger share of the money you pay each month.

Where interest still being added to your debts after being in a DMP for 6 months or more you could also consider changing your debt management company. You can do this at any time.

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2 thoughts on “Is interest stopped in a Debt Management Plan

  1. Angie says:

    I have a DMP with Step Change. One of the creditors is still charging interest which is killing us. Can I pay them a lump sum to reduce the interest whilst continuing to pay the others the same amount?

    1. Hi Angie

      Under normal circumstances there is nothing to stop you settling one of the debts in your DMP. In fact I would encourage this if you can because it means your debts will be repaid more quickly. Once a creditor is settled, the monthly payment they were receiving can then be shared across the remaining creditors meaning they are also repaid faster.

      That said given you are with Step Change, using this model can be tricky. As I understand it Step Change do not like the practise of paying off one creditor and not others. They often say it is not allowed unless an offer to settle them all can be made.

      Given you are with step change I suggest you discuss it with them. If they have not been able to stop the interest on this account then perhaps they will relax their rule for you on this occasion. If not you always have the option of paying off this debt anyway and then either managing the payments to the remaining creditors yourself or switching to a different debt management company.

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