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Frequently Asked Questions

When going through harsh economic times, many people often default on their debt obligations. Unfortunately, dealing with debt problems can be quite frustrating and many debtors are often left clueless on what the best course of action is. Some debtors may consider seeking bankruptcy, but that is not always the best option. A Debt Management Plan would be more appropriate. If you ever find yourself in a serious debt problem, the best thing that you can do is contact a debt management company to discuss your options. Getting professional assistance quickly is important as it can help to mitigate the effects of the default on your credit rating.

Who Qualifies for Debt Management?

Any UK citizen can apply for debt management. However, debtors have to meet several other requirements. For instance, the applicant must have a source of income. After paying utility bills, buying food and paying for accommodation, the applicant must have a surplus to qualify for debt management UK. The definition of a Debt Management Plan is simply; an agreement between the debtors with his or her creditors to repay all debts that are due, or in default. Obviously, the debtor must have an income source to qualify for a debt management plan (DMP). The types of debt owed to lenders also determine whether or not a person qualifies. Legally, DMPs can only be used to settle unsecured debts. This means that if you only have secured debts, such as a home and car loan, you may not qualify.

How does it Works?

After approaching a debt management company, debtors are often asked to list all their debts, income and assets. The debts are then classified as secured and unsecured, or priority and non-priority. The total amount of unsecured debt is computed and the new monthly instalment determined. The affected creditors are then notified by the company but they do not need to offer their consent. Once the plan is registered, the debtor will be required to send the monthly payments to the debt management company for fair distribution to all the affected creditors.

What are the Fees?

Debtors must pay a setup fee to the debt management company they choose to work with. There is also a handling fee for processing and distributing the monthly payments. The fee structure varies from one company to another. Some companies may charge an upfront fee to setup and administer the plan while others may take the first instalment as their payment. Whatever the case, it is important for debtors to do some research to identify a debt management company that has the best possible terms and conditions.

What are the Benefits?

The main benefit of DMPs is that they enable you to offset your debts without having to change your lifestyle significantly to cut costs. Secondly, they help to reduce the outstanding balance by stopping penalties and interest from accruing. Thirdly, they provide protection against creditors who would want to harass or sue you to recover their funds. Lastly, debt management plans can help you to regain financial stability and independence after settling your debts.

What are the Risks?

While a Debt Management Plan may have a number of benefits, it can also be risky. For instance, any default may lead to cancelling of the plan. This means that creditors will be free to take action against you, including seeking a declaration of bankruptcy. Default will also be reflected in your credit history; this may prevent you from accessing affordable loans in the future.

 

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