If you are consistently using payday loans or other forms of alternative finance to help you pay off existing debt, credit card bills or loan repayments on a monthly basis then a debt management plan may be a suitable option for you.
Debt management plans (DMP’s) help people who have built up a considerable amount of debt throughout the years to consolidate and reduce their monthly and overall debt repayments. If you are struggling to make repayments or occasionally have to turn to alternative methods of finance to pay off your debt then a debt management plan is likely to help with your current financial situation.
There are a number of companies throughout the UK that offer debt management plans. DMP’s works by reducing the overall level of an individual’s debt and in some cases have been known to reduce the overall debt by 60% – 80%.
How does a debt management plan work?
Before finding out if you are eligible for a DMP there are a number of checks that an individual finance advisor will need to carry out before you are signed up to a DMP.
- Your total monthly income
- How much of your income is being spent on making repayments
- The total amount of debt that is owed to creditors
- Who your creditors are
Your individual finance advisor will then inform your creditors of the debt management plan and will start to propose a new payment structure which would usually involve your creditors agreeing to reduce a large percentage of your debt. It is within the best interest of the creditors to reduce the level of debt or risk not receiving any form of repayments.
Once the new proposal has been agreed your advisor will set up a monthly payment plan with you. Instead of having to personally make a number of transactions to pay different creditors; just one direct debit will be taken from your account by your debt management company.
Your debt management company will then work on distributing the agreed monthly repayments to all of your creditors and will deal directly with them on your behalf. Not only do you no longer have to deal with any of your creditors again, but the monthly repayments you would have been originally making will have significantly reduced.
Debt management plans on average take between 5 years to complete, by the end of the 5 years you will be completely debt free providing you do not get yourself into further debt outside of your debt management plan.
In 2015 more than 3 million people expressed an interest in signing up to a debt management plan. Within the last 3 years, the need for DMP’s has increased by 45% and is expected to increase by a further 15% by 2017. The cost of living is increasing year on year, and vastly outweighs the minimum wage which is why so many people are turning to alternative methods of finance.
One of the main reasons for consumers reaching out to debt management companies was due to their salaries not increasing in conjunction to the elevated living costs. What may have been an affordable debt has soon turned into an almost impossible cost to repay.
For further advice on where you can turn for alternative finance or debt management advice, don’t hesitate to contact the payday pixie team.