Thursday, 18 August 2011

Debt Management Plan UK Questions and Answers

Debt Management Plans: Questions And Answers

A debt management is an informal debt solution which should be considered carefully before entering the solution. It will have a negative impact on a persons credit file. The solution can enable you to repay your debt over a longer period of time that originally agreed. You may also be able to freeze interest and charges too!

Here are some commonly asked questions about debt management plans.

Q. Can legal action be taken against me if my creditors are receiving monthly payments?

Ans. Yes, because it is an informal arrangement both you and your creditors can cancel the agreement at any time

Q. How will a Debt Management Plan change my credit file?

Ans. Because your creditors will place a default on your credit file which will last for 6 years. It's not guaranteed they will do this but more than likely. This is because you are not repaying them what was originally agreed. Credit reference agencies (Experian, Equifax and Call Credit) will record this default.

Q. Is a Debt Management Plan a loan?

Ans. No, you do not borrow more money in a debt management plan - you use the available disposable income to offer pro-rata payments towards each creditor.

Q. How long does a Debt Management Plan last?

Ans. There is no set time for a Debt Management Plan to last. You must repay all of the debt you owe. If your debt management plan will last longer than 10 years then another debt solution may be more suitable.

Q. Will interest and charges be frozen?

Ans. There is no guarantee interest and charges will be frozen but a debt management company will ask for this.

Q. Will they take my house in a Debt Management Plan?

Ans. No, they will not ask you to offer your house in a Debt Management Plan. You must keep up secured loan repayment though to ensure you maintain your mortgage and retain the property.

Q. I have a CCJ, can I enter a Debt Management Plan?

Ans. Yes, there are no problems entering a Debt Management Plan with a CCJ

Q. Can secured loan debts be included?

Ans. No, you must always maintain your secured loan payments. If you are in arrears with your mortgage this cannot be included.

Q. How much do companies charge to set up a Debt Management Plan?

Ans. For profit Debt Management Companies charge the first 2-3 months payments (meaning your account will go into further arrears) and then a monthly management payment of between 12% and 50% of your payments.

A charity will not charge you a set up or monthly management fee. A debt management charity will receive 10% of whatever they collect and return to the creditors out of the end pot of money.

Q. How can you tell if your creditors are being paid?

Ans. A Debt Management company should send you quarterly statements to update you on the progress being made and the money which has been repaid.

Q. Is there a minimum amount I need to pay into a Debt Management Plan?

Ans. The more you repay each month the quicker you will be debt free. The minimum amount a Debt Management company can accept is £100 per month. If you cannot afford this amount then another debt solution may be more suitable.

Q. How will the payments be made?

Ans. You will pay one company (the Debt Management company) your monthly payment and they will distribute this amongst your creditors.

Q. My creditors are still contacting me even though i'm in a Debt Management Plan, what can I do?

Ans. You should speak to your Debt Management company and ask then to act on your behalf and deal with any problems.

Q. What are the benefits of a Debt Management Plan?

Ans. Potentially you can benefit from
  • One monthly fee to one company
  • Reduced interest and charges
  • You don't have to liaise with creditors
  • You will pay back all of your debt
Q. What are the disadvantages of a Debt Management Plan?

Ans. The disadvantages are
  • It's informal so the plan can start and stop at any minute if the creditors change their mind
  • Your Debt Management plan could last for a long time
  • There is no guarantee interest and charges will be frozen
  • It will have a negative impact on your credit file
Q. Who can enter a Debt Management Plan?

Ans. Anyone can enter a Debt Management Plan as long as they have a disposable income and unsecured debt.

Q. How much debt should I have to enter a Debt Management Plan?

Ans. You should not enter a Debt Management Plan if you have less than £5,000 worth of debt.

Q. How many creditors do I need?

Ans. At least 2 or 3 (depends on the company). A Debt Management company will not negotiate with one company for you.

Q. Can Debt Management monthly payments change?

Ans. Yes, the Debt Management company will conduct a 6- monthly review of your income and expenditure. If you have more money which you can repay towards your creditors then you will be asked to make this. If your income drops then your Debt Management plan can continue (as long as you can afford at least £100 per month) with a lower amount.

Q. Are my creditors going to accept my proposal?

Ans. There is never any guarantee your creditors will accept your proposal.

Q. If a creditor refused my proposal what would happen?

Ans. If a creditor refused your debt proposal then the Debt Management plan could continue although you would have to negotiate yourself with the other creditor.

Q. Why would a creditor accept a Debt Management Plan proposal?

Ans. A creditor is likely to accept a Debt Management Plan because it's an agreement for them to get back all of the money they lent you. This means that despite it taking longer than agreed, the creditor will not be out of pocket.

Q. Can I take out more debt?

Ans. Technically you can take out more credit. Most Debt Management companies will remove you from the Debt Management plan if they understand you to be using further credit to supplement your lifestyle.

Q. Can you get a joint Debt Management plan?

Ans. Yes, you can have partners (two people) entering a Debt Management Plan together.

Q. Can you change Debt Management company if you are already in a Debt Management Plan?

Ans. Yes. It's an informal arrangement so you can change your Debt Management company at any time.

Q. Who tells the creditors about the Debt Management Plan?

Ans. The Debt Management company should tell the creditors about the Debt Management Plan.

Q. Who will know about my Debt Management Plan?

Ans. The only people who know about a Debt Management Plan are you, the Debt Management company, your creditors and anybody else you tell. The Debt Management Plan is not registered publicly.

Q. Do I have to tell my wife / husband / partner about my Debt Management Plan?

Ans. No, not if you don't want to.

Q. How much will each of my creditors receive each month?

Ans. Payments made to your creditors are made on a pro-rata basis. This means the creditor owed most will receive the largest amount each month. For instance, if you can afford £150 per month then this will be split accordingly.

                     Total debt    Percentage of debt      Monthly repayment   

Bank              £4,000               66%                         £99

Store card     £1,000                17%                        £25.5

Credit card    £1,000                17%                        £25.5


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