Debt management plans (DMPs) are a popular solution for borrowers struggling with mounting debts. DMPs are designed to help borrowers repay their debts in an affordable and manageable way. This article will explore how DMPs work, the benefits of using them, and how they can be tailored to suit individual borrowers’ needs.
How do DMPs work?
DMPs work by consolidating all of a borrower’s unsecured debts into one manageable monthly payment. This payment is then distributed to the borrower’s creditors on a pro-rata basis. In most cases, interest and charges are frozen on the debts included in the DMP, allowing the borrower to repay the debt without it increasing.
DMPs are typically set up by debt management companies, who work with the borrower to create a budget and determine how much they can afford to pay towards their debts each month. The debt management company then contacts the borrower’s creditors to negotiate a reduced monthly payment and freeze interest and charges.
What are the benefits of using a DMP?
- Reduced monthly payments: DMPs can reduce the amount a borrower pays each month towards their debts, making it easier to manage their finances.
- Single monthly payment: By consolidating all of their debts into one payment, borrowers can avoid the stress of managing multiple payments each month.
- Frozen interest and charges: In most cases, interest and charges on the debts included in the DMP are frozen, allowing the borrower to repay the debt without it increasing.
- Professional support: Debt management companies can provide borrowers with support and guidance throughout the DMP process.
How can DMPs be tailored to suit individual borrowers’ needs?
One of the key advantages of DMPs is that they can be tailored to suit individual borrowers’ needs. Debt management companies will work with borrowers to create a budget and determine how much they can afford to pay towards their debts each month. This means that the monthly payment can be adjusted to ensure it is affordable for the borrower.
In addition, DMPs can be tailored to include specific debts. For example, if a borrower has a high-priority debt, such as a mortgage or rent arrears, this can be prioritised within the DMP to ensure it is repaid first.
Finally, the length of the DMP can be adjusted to suit the borrower’s needs. While most DMPs last between three and five years, they can be extended or shortened depending on the borrower’s circumstances.
DMPs are a popular solution for borrowers struggling with debts. By consolidating all of their debts into one manageable monthly payment and freezing interest and charges, borrowers can repay their debts in an affordable and manageable way. DMPs can be tailored to suit individual borrowers’ needs, making them a flexible and effective debt solution.