What is a DMP?

A DMP stands for Debt Management Plan. It’s a financial arrangement designed to help people repay their eligible debts and loans in a more manageable way of a single payment.

It’s not a loan, but rather a structured payment plan to you in repaying your debts and loans more effectively.

To be eligible you:

If the above are met, DMPs are typically offered by many debt advice agencies, including us here at PayPlan – we don’t’ charge any fees to do it.

What debts can and can’t be included in a DMP?

A Debt Management Plan is designed to help you pay off your unsecured debt at a more affordable rate. Unsecured debts that can be included could include:

Debts that cannot be included in a DMP are what we call priority debts. These include debts that have been secured against your home and other assets, as well as utility bills. These debts are:

Let me explain how a DMP works, and later I’ll explain the possible impacts.

First you will need to go through an income and expenditure with an advisor or complete online. This can be done over the phone, or WhatsApp if you prefer, this is so we can get an overview of your financial circumstances. It's important we calculate a realistic 'surplus' so that you have enough money to live on and can afford one single monthly payment to all your lenders in your plan.

We will also need a detailed list of your lenders and the outstanding amounts.

When your Adviser has a full and complete picture of your lenders, who you owe money to, your budget, and amount that you can pay towards your debts, you will then have a couple of options explained to you, together with a specific recommendation tailored to your circumstances. One of these options may be a DMP.

We'll explain why a DMP is recommended for your specific situation, but the choice is ultimately yours.

If you decide to go ahead, we will need you to sign a letter of authority giving us permission to act on your behalf, don’t worry, this is very simple and can be done online.

Once we receive your letter of authority, PayPlan will contact your lenders on your behalf to offer your affordable repayment plan. This could include stopping interest and charges, Reduced interest rates or extended repayment periods.

If you enter into a DMP

Under the DMP arrangement, you will only make one single monthly payment to PayPlan for all the lenders you owe money to under your plan.

We then distribute this to your lenders under the terms of the DMP. This simplifies your repayment process and ensures that your lenders receive consistent regular payments.

You will complete a review with one of our advisers every year to ensure we have your details up to date and you can still afford your payments.

You need to continue to make regular monthly payments throughout the time of your DMP until all debts are repaid. DMPs usually last 3 to 5 years, but can last more depending on the individual's circumstances.

Once all debts covered by the DMP are repaid, you’re considered debt-free from those particular debts and loans,.

During the DMP if your circumstances happen to change, don’t worry contact us we are here to help.

Remember, you can contact us at any time.

Now, this sound great right?

What are downsides of DMP?

It’s important to consider if a DMP is right for you. If your PayPlan adviser has recommended one, you will be provided with the reasons why we believe this to be suitable to your circumstances.

At the same time, you should also be aware of possible impact of a DMP too.

Impact on you Credit Rating

The first point usually asked is the impact on your credit rating.

When you enter into a DMP, it may be recorded on your credit report. While the DMP itself does not directly affect your credit score, the fact that you are using a DMP to pay your debts can signal to potential lenders that you are experiencing financial difficulties and struggling to manage your debts.

This could make it harder to obtain new credit while you are on the plan.

When it comes to your credit rating, any sort of Debt Management Plan could affect your credit score for a while. But keeping regular payments will always help your score.

So, the truth is, that the beneficial effects of a DMP helping you with more cash available for day to day living expenses, and the stress relief, far outweighs a slight down grade in your short term credit rating and ability to borrow money.

Other impacts of a DMP

Repayment Period:
DMPs typically extend the repayment period, often spanning several years, as the monthly payments are reduced to accommodate your financial situation. This means it could take longer to become debt-free compared to other debt options.

Potential Interest Continuation:
While most creditors may reduce or eliminate interest charges on the debts included in the DMP, some may continue charging interest, which can slow down the repayment process and increase the total amount repaid.

PayPlan have a good relationship with many lenders and are often successful in getting interest charges frozen or reduced.

Debt Exclusion: Certain debts may not be eligible for inclusion in a DMP, such as secured debts like mortgages or car loans. If you’re struggling with multiple types of debt, a DMP may not provide a comprehensive solution.

Future Loan Terms: If you apply for new credit in the future, having a history of being in a DMP may result in less favourable loan terms or higher interest rates.

DMP Fees: Some Debt Agencies charge fees for setting up Debt Management Plans – PayPlan don’t charge fees.

Potential DMP Default: If you miss a payment or fail to stick to the DMP terms, your lenders may remove you from the debt program, leaving you to deal with your debts on your own and facing further contact, hassle and possible collection actions.

It’s important to note that If you fail to keep to your agreed repayment terms, your plan could be cancelled. Your creditors may also look to take legal action against you to ensure they get some form of repayment from you.

So in summary, there are advantages and disadvantages of a DMP.

Remember to weigh up the benefits of:

Speak to your PayPlan Adviser if you have any further questions or wish to discuss any specific concerns.

We’re here to listen and help.