DEBT MANAGEMENT PLAN (DMP)
A Debt Management Plan (DMP) is an informal agreement between you and your unsecured creditors to repay non-priority debts. It involves consolidating your monthly debt payments to a single, affordable amount.
Advantages
- A DMP allows you to pay one affordable regular payment that is distributed among your creditors. If you have a fee-free DMP, all your payment goes directly to your creditors. If you opt for a fee-charging DMP, a management fee is deducted before your payment is distributed.
- Interest and charges on included debts may be frozen, but this is not guaranteed.
- It can help slow down direct creditor contact, as your DMP provider will handle communications and manage negotiations on your behalf.
- DMPs are informal and flexible. They are not legally binding, so you can leave the plan at any time if your financial situation improves.
Disadvantages
- Fee-charging DMPs may incur monthly fees that are deducted from your payment before it is distributed to creditors. Fees vary by provider.
- There is no guarantee that interest and charges will be frozen.
- Creditors can still contact you about payments and may refuse to co-operate with the DMP.
- A DMP may adversely affect your credit rating for up to 6 years , potentially limiting your ability to obtain new credit.
- Your debts will still have to be paid in full, though the monthly payments will be adjusted to a level you can afford. This may extend the term of your debt repayments.
