In certain situations, a question-answer format like an FAQ can immediately solve a lot of queries. So, we are planning to develop an extensive knowledge base in question-answer format for all the topics like debt management, debt consolidation, IVA etc.
In this post we will answer some important and common questions on Debt Management. If your question is not answered in this list or if any answer does not solve your problem, please write a comment; we will make the necessary changes as soon as possible.
Debt Management FAQ
1. What is a debt management plan?
A debt management plan or DMP is a voluntary agreement between the debtor and creditors to manage existing debts. In this process the debtor can repay all creditors in a single monthly payment. For some people it can be an effective way to become debt free in a few years.
2. Will debt management plan affect my credit rating?
If you have an existing debt problem, your credit rating is already affected. The debt management plan will not make it worse. However, regular repayments via a DMP will eventually make you debt free and improve your credit rating.
3. Who are eligible for a debt management plan?
If you have more than two creditors and finding it difficult to pay them off, you can obtain a suitable debt management plan. The plan will accumulate all your debts into one single debt and allow you to make a single monthly payment to all creditors.
4. Will it take longer to pay off my debts?
Yes, it will take longer than usual to pay off your debts with DMP. This happens because you are paying a small amount every month. Nevertheless, DMP also reduces the number of missed payments.
5. Does a debt management plan cover all my debts?
No, debt management plan does not cover all your debts. It only covers your unsecured debts.
6. Will the creditors stop charging interest?
In a debt management plan the debt advisor negotiates with creditors to freeze your interest on the dues. However, based on your financial circumstances the creditors may freeze or lower the rate of interest on your repayment. It solely depends on the creditors.
7. Does the repayment amount remains fixed throughout?
The repayment amount can only remain fixed throughout the tenure if the creditors agree to freeze the rate of interest on the debt. This entirely depends on your specific financial situation as well as the creditor’s decision. Usually the creditors agree upon a very low rate of interest on the DMP.
8. How can a debt advisor help me?
A debt advisor can make a suitable plan for you after assessing your income, expenditures and capability to repay debts. They negotiate with your creditors helping you to obtain an affordable monthly repayment scheme.
9. Will my creditors accept this arrangement?
Creditors will accept a debt management plan if they see that the debtor is missing payments or not paying on time. Your debt advisor will negotiate with your creditors on your behalf.
10. What is the information required while applying for a DMP?
When you are applying for a DMP you need to provide exact information on your financial situation. These include:
- Credit card statements, bank statements, or other loan agreements
- Complete break-up of your earning and expenses in a month
- If you have any CCJ or credit defaults
- Details of the creditors, account numbers and balances
- Details of your secured loans
- Details of Hire Purchase Agreements
- Details of any benefits that you receive
11. Is debt management good for me?
It depends on your current financial status and future financial projections. For more information please read: Debt Management Plan: Can it help you?
This post will be updated regularly depending on your needs. If you need more information on debt management, please write to us in the comment box.
i have a question as i am on a Debt Managment Plan. i want to move to a new home as my family needs a bigr space. can i do that?
Are you planning to buy a new home or do you already have one like your parental home?
You are not supposed to take any more credit when you are on a DMP. If you are planning to take a larger mortgage then your DMP might be at risk. Moreover, it will be quite difficult for you to get a mortgage at this stage (at a reasonable rate).
You will need to clear your debts and repair your credit rating before you could get a decent mortgage. So let your DMP be successful and then only it would be wise to get a new home for your family.