The Steps needed to start Debt Management Plan
If you have decided to use a Debt Management Plan (DMP) you now need to understand the steps needed to get it up and running. The Plan is an informal agreement with your creditors. As such if you wish you can negotiate directly with them and put it in place yourself. Alternatively you can use a debt management service to help you. If you decide to use a service then information about how to implement your Plan is still useful. You need to understand what the service provider will do for you so you can judge the quality of their work.
Step 1. Complete a Financial Statement
The first of the steps needed to start a Debt Management Plan is to put together a financial statement. This is a summary of your financial situation. It gives information about your debts, your income and your living expenses. It also shows the amount that you are proposing to pay into your Plan each month and how this will be divided between your debts. Your creditors will review your financial statement so that they can understand why you are struggling to repay what you owe and whether or not the offer of repayment you are making seems reasonable.
DM4U Tip: At this stage you also need to decide whether or not you need to open a new bank account. You should always do this if your current bank will be one of the creditors in your Plan. The reason for this is once your Plan starts your current bank can take money out of your account to pay their debts without your authority.
Step 2. Agree reduced payments with your Creditors
The next of the steps needed to put your Debt Management Plan in place is to agree the reduced payments with your creditors. This process is started by sending a copy of your financial statement and proposal of payment to each of the creditors included in the Plan. They are likely to react to your proposal in different ways. Some may accept your offer of payment without any further comment. Others will be less happy to agree and may want to argue for higher payments or will initially refuse to freeze further interest and late payment charges. It could take up to three months or more to get agreement from all of your creditors. It is possible that some may never agree.
Step 3. Maintain your Debt Management Payments as agreed
Once your Debt Management Plan proposal has been sent to each of your creditors the next of the steps needed is to start making your reduced payments. You should not wait for your creditors to agree to your proposal. You should start the payments straight away. You must then then keep paying them on time every month. Many of your creditors will not agree your Plan until they can actually see evidence that you can maintain the payments that you have proposed.
DM4U Tip: Continue to make your reduced payments to each creditor even if one or more of them initially refuses your offer. Be very careful about agree to paying them more. If you have calculated what you can afford to pay them correctly you are not in a position to offer any of your creditors any more money as you simply do not have it.
Step 4. Review your financial circumstances regularly
Generally speaking each creditor included in your Debt Management Plan will periodically want to review your financial circumstances. Initially they may require a review every six months. However once your Plan has been running for a while this may extend to a review once a year.
When the time to review your financial situation comes around you will need to resubmit your financial statement to each of your creditors. If your circumstances have not changed the amount you can afford to repay your creditors will also not have changed. You should still submit a new financial statement stating this. If your circumstances have changed the differences should be highlighted in your revised financial statement and a new agreement negotiated with your creditors if necessary.
Step 5. Pay your debts in full or settle early with a lump sum
If you are using a Debt Management Plan it is important to understand that you are still obliged to repay all of the debt you owe in full. This means that it will only come to an end in one of two ways. The first is that you continue to make your payments until you have repaid everything. The more you are able to repay each month the faster your debts will be paid and the sooner the Plan will end. Alternatively you might be able to settle your Plan early. This is possible if you find yourself in a position where you can offer your creditors a cash lump sum in return for them writing off the remainder of what you owe them.
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