If you’re looking to restore control over your finances, a Debt Management Plan (DMP) could help you accomplish this. In essence, a DMP is an informal arrangement between you and your creditors. If agreed, these lenders will typically accept lower monthly repayments so you can resolve your debts.
Debt Management Plan - Pros and Cons
Similar to other financial products though, DMPs have a range of pros and cons you should be aware of. So you can determine whether a Debt Management Plan is right for you, we’ve detailed these below:
Cons of a Debt Management Plan
A DMP has several negatives though which you should be aware of:
Not legally binding
Although considered an advantage by some, a Debt Management Plan is not legally binding. This gives you some extra flexibility but a DMP does not carry any legal protections. As a result, if a creditor wants to no longer follow the terms of the agreement, there’s nothing to stop them.
Creditors don’t have to agree
A Debt Management Plan is very much dependent on your creditors agreeing to it. Although you can make a proposal, these lenders might choose to reject it. If one of your creditors refuses the terms of the agreement, the DMP may no longer be beneficial.
Interest may not be frozen
Whereas some debt solutions - such as an IVA - will freeze interest and charges, this isn’t guaranteed with a DMP. Although many creditors will do this as a gesture of goodwill, other lenders won’t be as generous.
May take longer to resolve debts
Depending on the size of your debt, a DMP could be resolved reasonably quickly. However, as there is no fixed length for this solution, they will last until the debt is paid off. In contrast, a Trust Deed in Scotland can last for around five years while an IVA should end in about six.
Your credit rating will be affected
Your credit rating will be affected while a Debt Management Plan is active. As a result, you could find it harder to obtain loans or other financial products in the future.
Have questions about Debt Management Plans?
If you’d like to find more information about Debt Management Plans, click the button below and we can determine if one of these would be the best solution for you. In just a few hours, you could be well on your way to resolving your debts.