The effects of DMP
A Debt Management Plan (DMP) can be an excellent way of managing your debts and getting your finances back under control. However before deciding if this solution is right for you it is important to understand the effects of a DMP and what these will mean for you. The affects should not be categorised as either good or bad. Whether they have a positive or negative impact on you will depend entirely on your individual financial circumstances and attitude to repaying debt. You should consider each in the context of your own unique financial and family situation.
How long does a Debt Management Plan last?
One of the most important things to understand about a Debt Management Plan is how long it will last. The answer to this is different for everyone. This is because you will be obliged to continue paying into the Plan until you have repaid all of the debt you owe in full. It is possible to estimate the length of your plan by dividing the total debt included by the amount you will repay each month. However this period could be extended if additional interest and charges are added during the Plan. Using a fee charging debt management service could also extend the length of your Plan.
Who will find out about my Debt Management Plan
A Debt Management Plan is the only truly private debt solution. This is because there is no formal register of people who are in a DMP. As such no-one can find out unless you chose to tell them. Having said that it might be difficult to hide the fact that you are struggling with debts from other members of your family. You are likely to get an increased number of collections letters and phone calls which could be difficult to keep to yourself. It might be possible for someone to find out that you have a debt problem by carrying out a credit check against you. This will show that you are in arrears with your payments and will indicate you have a poor credit rating. However it will not confirm that you are in a Debt Management Plan.
How will a Debt Management Plan affect my Bank Account?
Your bank account is not necessarily affected if you start a Debt management Plan. What happens will depend on whether any of the debts that you include in the Plan are owed to your bank. If they are then the bank has the right of set off. This means that they can take money from your account to pay any other account that is in arrears. The only thing you can do to be sure of preventing this is to open a new account with a bank unrelated to any of the debts in your Plan. Alternatively you could use someone else’s account but this is far less convenient.
How will a Debt Management Plan affect my Credit Rating?
If you start a Debt Management Plan your credit rating will be negatively affected. This will mean you will normally be turned down if you apply for any new form of credit. Generally speaking your credit rating will not start to improve until you have completed your Plan. In other words when you have paid off all the debt you owe in full or settled it early with a cash lump sum. If you have ongoing credit agreements which are not included in your Plan these will not be affected. For example you will be able to continue with your current mobile phone contract. You could also continue to use a credit card if the account is not included in the Plan. It might be possible for you to get a new mortgage while you are still in your Plan. However you would need to be able to prove that you have made your payments on time for at least a year and that you have not received any new default notices or CCJs within that time.
How will a Debt Management Plan affect my Home?
If you are trying to decide whether a Debt management Plan is right for you one of the first questions you may want to find the answer to is how will it affect your house. Generally speaking your home will not be affected. This is certainly the case if you are renting as your landlord will not find out about the Plan. If you are a home owner your property will not be involved in the Plan. You do not have to release any of your equity to help pay off your debts. However you need to be aware that the Plan does not give you any legal protection. As such any of your creditors can still apply for a County Court Judgement (CCJ) against you and then a Charging Order against your property if they wish.
Government Advice about Dealing with Debt
As well as the information found on this website the Government’s Insolvency Service has produced a useful guide to personal debt solutions which you might also find useful: “Options for paying off your debts”.
The Money Advice Service (MAS) are an independent service set up by the Government to provide people with free advice about all aspects of personal finances. For help from MAS if you are struggling with debt please follow this link:MAS – Help if you are struggling with debt.
It is also recommended that you read this one page document produced by MAS entitled “Dealing with debt – 5 things you should know”.
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