Interest is being added to my Debt Management Plan
A Debt Management Plan (DMP) is an informal agreement. This means that once you have started the Plan your creditors are not under any obligation to freeze interest or charges. If your Plan is properly managed interest will often be frozen. However if it continues to be added then rather than reducing your account balances may stay the same or even increase. At the very least this will mean that the time your Plan lasts will be significantly extended.
How to ensure interest is frozen during a Debt Management Plan
If you start a Debt Management Plan it is important to remember that your creditors do not have freeze their interest charges. However this does not mean that they will not do so. There are some things you can do to give yourself the best chance of interest being frozen.
The first is ensure that you are offering to pay as much as you can into the Plan. Your creditors will be more inclined to help you by freezing interest if they can see you are doing your best to repay them as quickly as possible. Make sure that your living expenses budget is reasonable and that you are not spending more than you need. This will ensure your Plan payments are are high as possible.
The second is to ensure that you make your payments on time. Making regular sustained payments will mean that you 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 charges.
Give creditors time to freeze interest
It is important to understand that your creditors may not freeze their interest charges from the first month that you start paying into your Debt Management Plan. It is more likely that they will wait for 2-3 months so that they can confirm you are maintaining your payments.
After a few months of paying your Plan your creditors may pass your account to a debt collection agency. If this happens you may have to renegotiate your payments with them. However one of the advantages of dealing with a collecting company is that additional interest and charges will normally be frozen when your account is handed to them.
DM4U Tip: If you are a few months into your Plan but are finding that one or more creditors continues to add interest you may need change the service provider who is managing your plan. It is an informal agreement so you can change your service provider at any time.
Settle debts early if interest is being added
If having tried everything a creditor simply refuses to freeze their interest a different way you can tackle the problem is by paying the debt off early. If you can get a cash lump sum either by saving or borrowing you could offer to settle the debt.
If you have been in your Debt Management plan for 6 months or more then most of not all of your creditors will normally accept an offer of 50% of what they owed paid in a lump sum. In return they will write off the remainder of the debt.
If you are able to agree a settlement like this with the creditors who are continuing to charge interest it will go a long way towards reducing the time it takes to finish your Plan. Not only will the total number of your creditors go down but the remaining creditors will get a bigger share of the money you pay each month. Their debts will therefore be repaid faster as well.
Consider an alternative debt solution
You may feel you are doing everything you can to appease your creditors. You may be making payments on time and paying as much as you can afford. If despite this they continue to add interest and you cannot afford to offer them lump sum settlements your only option may be to consider an alternative solution.
The options you should consider include an Individual Voluntary Arrangement (IVA), Debt Relief Order or Bankruptcy. The most appropriate for you will depend on your personal circumstances. Importantly how much you owe, the amount you can afford to pay each month and whether you are a home owner.
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