How to Choose a Debt Management Plan (2024)

FAQs

When to consider a debt management plan? ›

Debt management plans are usually best for people who are deeply in debt but can still make the required monthly payment. You'll also have to check whether your debt qualifies for the plan.

Disadvantages of a debt management plan include: your debts must be repaid in full – they will not be written off. creditors don't have to enter into a debt management plan and may still contact you asking for immediate repayment. mortgages and other 'secured' debts are not covered by a debt management plan.

Every participating creditor offers their own rates, but in aggregate, the average interest rate for accounts included on a debt management plan with MMI is below 8%.

How a Debt Management Plan Works. The first step is to review your financial situation with a nonprofit credit counselor before you agree to a debt management plan. This will help the counselor design a plan that meets your needs.

While debt management plans can be effective tools for repaying your debt, they're not always the best strategy. For example, secured debts and student loans aren't eligible for debt management plans, and credit counseling agencies may cap how much debt you can have to participate.

Yes – creditors are under no obligation to accept your DMP. They might do this if they don't want to accept reduced payments or feel you could afford to pay more. If they refuse to negotiate with your DMP provider, it can be worth negotiating with them yourself. Outline what you can afford to pay each month and why.

Even if you're in a DMP, your creditors may still record that you've missed payments, as you'll be paying less than you agreed to when you took out the original credit agreement. This will mean you could find it harder to get credit while you're making reduced payments and for some time afterwards.

You're required to close your accounts

Any credit card that is included in your DMP is required to be closed. Here's how it works — the creditor, which is typically a bank or other financial institution, works with MMI to create a DMP, which usually includes reduced interest rates on your credit card accounts.

DMPs and Your Bank Account

You can often continue using your current bank account as normal. However, as specialists in DMPs, we recommend that you change your bank account if you have an overdraft that you have used and are now applying for a DMP.

It's calculated by dividing your monthly debts by your gross monthly income. Generally, it's a good idea to keep your DTI ratio below 43%, though 35% or less is considered “good.”

Can you negotiate a debt management plan? ›

Can you reduce the payments? The amount you pay into a DMP doesn't have to be set in stone. If you're struggling to make the payments each month, ask your provider whether it's possible to reduce the monthly payments. Bear in mind that if your payments are reduced, your debt may take even longer to pay off.

You are merely hiring someone to liaise with your creditors and divide your monthly payment between them. If your circ*mstances improve and you find yourself in a better financial position, you can pay off your debt management agreement early.

Being on a debt management plan (DMP) affects your credit file and score. You may pay less than the minimum amount you agreed when you took on the debts. Your credit file is affected before a DMP if: You miss payments.

You may consider debt relief if: You're behind on credit card bills or other loan payments. You're not behind on bills yet, but you're struggling to afford your payments. You've tried to manage your debt on your own, but you can't seem to make any progress.

A DMP may be a good option if the following apply to you: you can afford your living costs and have a way to deal with any priority debts, but you're struggling to keep up with your credit cards and loans. you'd like someone to deal with your creditors for you.

What counts as a successful DMP? You're making a success of your DMP when: You're making realistic payments on time each month. It runs smoothly alongside your other expenses, so you always have enough for priority bills and living costs.