Debt Management Plans-Seven Super Important Questions To Ask

Debt Management Plans-Seven Super Important Questions To Ask

A debt management plan is a common way of solving debt issues in the UK. An individual using this plan has a higher chance of recovering financially, however a debt management plan is not useful in all situations. One needs to analyze his or her situation, ask the right questions before making a decision. Here are seven super important questions regarding debt management plans, that you need to ask and understand fully before making any decision or commitment.

What are debt management plans?
These are strategies developed to assist one get organized when repaying debt. The plans are made by the debtor with the help of a credit counselling company. They usually involve the debtor contributing a lump sum amount to the debt management company every month.

What is the role of the debt management company?
The debt management company uses the monthly payments to clear off the debtor’s loan repayments, bills from credit cards and credit accounts. It also negotiates with the lenders on behalf of the debtor to get the lenders to drop or lower their finance charges and interest rates. Most of the lenders are usually more flexible when they are dealing with third party companies. However there are no guarantees that negotiations are successful at all times.

How much is the monthly payment?
The payment is normally dependent on the debtor’s situation. It is reached after a discussion with the debt company of the debtor’s financial situation and a list of all the debtor’s creditors and their balances is made. With this information, the debt management company and the debtor can agree on the best figure.

How long does the plan last?
The duration is dependent on two factors; the amount of debt and the monthly payment. The larger the amount paid every month, the shorter the DMP. However in general, it lasts between 2 to 5 years on average, though some can end sooner.

What is the effect of the DMP on my credit rating?
Your credit score will not change immediately you join the program, however it will gradually increase as you continue making your payments.

Will I keep my house?
Yes. You have the option of keeping your house or offering it to the debt management plan. It is your decision.

Can I file for bankruptcy instead?
This is your decision. However you should know that a DMP will not affect your credit standing but filing for bankruptcy will for about 7 to 10 years.

Before engaging in a DMP, consult a debt management company.

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