What Is A Debt Management Plan?
A Debt Management Plan is an informally negotiated agreement between you and your creditors. If you’re struggling to pay your unsecured debts it could help you to reduce your monthly payments to a figure that you can manage.
Informal debt management plans might be negotiated (creditor by creditor) yourself, or you could employ a debt management company to do this work for you.
You make reduced repayment offers to each creditor based upon what you can afford to pay. You may also request that the creditor agree to reduce or freeze the interest on each account. Lenders review your offer and request to decide whether it’s acceptable to them. Their decision is based upon your current circumstances and their own applicable policies.
Supportive creditors will therefore grant you additional time and space to repay the money that you owe. If they agree to freeze or reduce their interest charges you’ll be able to clear the debts sooner.
Who Might Consider Using A DMP In Ireland?
A debt management plan usually only deals with unsecured debts. Mortgage debts would not normally be included.
If you’re struggling to manage your unsecured debt repayments while covering your everyday cost of living, a debt management plan might be one of the options you could consider.
To fund your proposal you must have some disposable income. This is money that is available to you over and above your other household bills and costs. Your disposable income will form the core of your offer to the creditors.
A debt management plan might be a useful option if you cannot afford to meet your contractual debt repayments but you could, if your regular repayments were reduced, fully repay your debts within a term shorter than that applicable to a Debt Settlement Arrangement.
How Could You Benefit From Debt Management?
Will Your Creditors Support This?
Lenders don’t have to agree to debt management plans. Because they are informal agreements each creditor can make their own decision about accepting or rejecting a plan. Where a plan is rejected creditors could carry on with debt collection activities.
It should however be remembered that lenders are commercial operations that wish to recover the money that is due to them. If a borrower is experiencing financial difficulty a debt management plan might offer the lender a low-cost and efficient route to eventually recovering the money that they are owed.
Rejecting a DMP offer of payment might make an already difficult financial situation much worse. This carries the risk that the debtor simply gives up and stops paying their debts altogether. The debtor might also consider a DRN, DSA or PIA instead if their DMP were rejected. If they went ahead with one of these options the creditors are unlikely to ever make a full recovery of the money that they are owed.
Debt management plans can therefore make as much sense for creditors as they do for you.
When Can You Start A Plan?
Informal debt management plans are currently available.
Where Can You Find A Good Plan Provider?
Debt Advice Ireland will soon publish the details of debt management providers that we recommend.
Our panel of debt experts will be pleased to answer any questions that you have about debt management plans in our debt forums.