Effects of a DMP
Starting a debt management plan will have a number of effects on you. You need to understand these before deciding whether to use this solution.
Included in this article:
- How long will your debt management plan last?
- What happens to your credit rating?
- Is your house at risk
- Can you still use your bank account
- Is a debt management plan private?
Need more advice? Call us (0800 044 5047) or complete the form below and we’ll call you. It’s free and confidential
How long will your debt management plan last?
One of the most important things to understand about a Debt Management Plan (DMP) is how long it will last. This is different for everyone. The effects of being in the Plan will last until you have repaid or settled all of your debt 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.
You can reduce the length of time it takes to become debt free by increasing the amount you pay in each month or offering cash lump sums to settle accounts early.
What happens to your credit rating?
Starting a debt management plan will mean your credit rating becomes poor. As a result if this, applications you make for any new forms of credit will be rejected.
Generally speaking your credit rating will not start to improve until you have completed your Plan.
Ongoing credit agreements which are not included in your Plan are not affected. For example, you can continue paying your current mobile phone contract as normal.
You are allowed to continue with agreements such as your mobile phone and car finance if you start a DMP.
Is your house at risk if you have a debt management plan?
Your home is not taken into account when you start a debt management plan. If you have equity, this is not at risk. You will not be obliged to release any of it.
That said, because the Plan is not legally binding, it does not give you any legal protection. As such, any of your creditors can still take further enforcement action against you.
It is possible that any of the companies you owe money to could apply for a CCJ against you and then a Charging Order against your property. This would secure the debt and reduce the equity in your home.
If you want to ensure you home is protected from your creditors, you might be better off using an IVA. Speak to use for more advice about this.
Can you still use your bank account?
What happens to your bank account will depend on whether any of the debts you include in your Plan are owed to your bank. If they are, you will need to open a new account elsewhere.
This is because your 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 way to be sure of preventing this is to start using an account with a bank unrelated to any of your debts.
Opening a new basic account is not difficult even if your credit rating is already poor. Most banks offer these accounts. They come with all the facilities you will need such as a debit card and internet banking.
Is a debt management plan private?
A debt management plan is a private debt solution. There is no formal register of people who are in a DMP. As such no-one can find out unless you choose to tell them.
It is 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 payments and have a poor credit rating. However it will not confirm that you are in a DMP.
Your employer will not be told about your DMP. It will not have any affect on your job.
Want more advice about the effects of a debt management plan and whether it’s the right solution for you? Call us (0800 044 5407) or complete the form below. Its free and confidential.
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”.
Money Helper (provided by the Money & Pensions Service) is an independent service set up by the Government to provide people with free advice about all aspects of personal finances. For further information, please follow this link: Help if you are struggling with debt.
It is also recommended that you read this one page document produced by the Money & Pensions Service entitled “Dealing with debt – 5 things you should know”.
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