A Debt Management Plan is a mechanism by which you can have a third party negotiate with the people to whom you owe money and set out a plan by which you will make a single, affordable monthly payment each month.
Debts that can be included in a DMT are referred to as non-priority debts and include;
- Personal loans
- Bank or building society loans
- Money borrowed from friends or family
- Credit card, store card debts or payday loans
- Catalogue, home credit or in-store credit debts
Unfortunately, some debts can’t be included in a DMT. These include;
- Court fines
- TV Licence
- Council Tax
- Gas and electricity bills
- Child support and maintenance
- Income Tax, National Insurance and VAT
- Mortgage, rent and any loans secured against your home
- Hire purchase agreements, if what you’re buying with them is essential.
- These debts are known as ‘priority debts’.
Whilst a Debt Management Plan is not specifically registered on your credit file, the fact that the implementation of a DMP will almost always be the result of you struggling to maintain (or miss previous payments to creditors) may have an effect on your credit score. However, just because you have a DMP does not necessarily restrict you from obtaining a mortgage as long as your credit history and other factors are still within parameters.
Whilst anyone can set up a Debt Management Plan, if you use a third party business then they must be properly registered with the FCA. The advantage of using a third party is that they do all the negotiating with your creditors, taking away that pain and hassle. You then pay one single agreed payment plus a once-a-month charge to your Debt Manager.
You may qualify for a Debt Management Plan if you have unsecured debt equivalent to between 15% and 39% of your annual income and you’re finding it hard to maintain repayments. It’s also usual to be on a steady income that should allow you to repay the outstanding debts over 5 years or less.
A DMP can take just a few weeks to set up and can give you the flexibility needed to repay your creditors over time.
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