Will interest and charges be frozen?
There is no guarantee that interest and late payment charges will be frozen if you undertake a debt management plan. However, many creditors will suspend or at least reduce these charges once they see regular payments being made into the plan.
Creditors may start to add charges again if payments cease or are reduced.
Will I have to release equity from my property?
No. A debt management plan is an informal agreement with creditors and there is no legal requirement to involve your property or release equity from it.
Of course, if you choose to raise a lump sum from your property, this could be used to settle one or more of your debts which would mean that they would be paid off faster.
Which debts can be included in a DMP?
Generally all unsecured debts can be included in a debt management plan. These include but are not limited to:
• Credit cards
• Personal loans
• Bank overdrafts
• Catalogues
• Store cards
• Outstanding balances after home or vehicle repossession
• Business loans for which you are personally responsible
Note – it is normally not possible to include tax or VAT debts in a debt management plan
Is debt written off in a debt management plan?
No. If you use a debt management plan, your creditors will not agree to write off debt for you and you will be expected to repay 100% of what you owe.
The only time that debt may be written off is if you are able to offer a lump sum settlement to one or more of your creditors.
I own a property. Will I get a charging order?
If you own a property and you carry out a debt management plan, you will not necessarily get a charging order. However, a debt management plan does not prevent your creditors taking further legal action against you to collect their debt.
It is becoming more and more usual for creditors to apply for a county court judgement and then a charging order to secure their debt against a property to ensure that it is eventually paid back in full especially if you subsequently decide to do an individual voluntary arrangement or declare bankruptcy.
Will a DMP affect my credit rating?
If you go into a debt management plan, by definition you will reduce your payments each month to less than your original agreements. When this happens, even though your creditors have agreed to reduced payments, they will issue default notices against you. These will be registered on your credit file and have a negative effect on your credit rating.
What happens if my circumstances change?
A debt management plan is a flexible solution. As such, you can increase or reduce your monthly payments at any time if your circumstances change.
Remember, the debt management plan will not finish until 100% of your debt is repaid. As such, it is always a good idea to increase your monthly payments if you can afford to do so.
If you reduce your payments, there is a risk that your creditors will start to add interest and late payment charges to your accounts once again.
Do I have to include all of my debts into the plan?
Generally speaking it is not advisable to leave any creditors out of your debt management plan.
However, because a debt management plan is an informal agreement, it is possible to omit creditors if you wish. This could be particularly useful if you want to retain one line of credit - perhaps a credit card - which you keep paying as normal.
How long will it take to pay my debt?
If you use a debt management plan, you will have to repay 100% of your debt back. To calculate how long this will take, you should divide your total debt by the total amount you can pay all of your creditors each month. To convert this into years, divide by 12.
For example:
If your debt = £20,000 and you repay £180 per month, it will take 20,000/180 = 111/12 = 9 years to repay
Note, if additional interest and charges are added to your accounts, the length of time it takes to repay all of your debt will be extended.