Debt management plans – when are they the right choice?
Christmas now feels like a distant memory. However, for those who might fall under the banner of, “Just About Managing”, January’s credit card bills will be an unwelcome visit from the Ghost of Christmas Past.
Just as we feel better for having given our homes a spring clean, it is now an ideal time to take a step back and review our personal finances.
If you are only able to meet your monthly minimum payments, you should take heed of the warning signs that something is wrong. Continuing on this path will only result in the accumulation of further interest and spiralling balances. Your credit card company will love you because of the profits they will make from the interest but long term it is unsustainable.
At Gibson Hewitt we are amazed by the number of individuals we meet in these circumstances who have been advised to enter into a Debt Management Plan (DMP).
If you are struggling to pay your bills, a DMP is great from the perspective of your lenders, they won’t have to write off any of the debt. It’s also an easy solution for a “Debt Advisor” to suggest but is it really the best option for you? The answer is a very cautious, perhaps.
What is a Debt Management Plan?
A Debt Management Plan, (“DMP”), is an informal insolvency procedure to address a debtor’s inability to maintain their regular payments to their creditors which is negotiated between a DMP provider and each of their creditors individually. For more details see www.gibsonhewitt.co.uk/2018/02/09/the-pros-and-cons-of-debt-management-plans
When is a DMP likely to be the right choice?
In our opinion, there are very few occasions when a DMP is the best available option from the perspective of the borrower. Only if you satisfy all of the following criteria would we suggest you seriously consider a DMP:
- If all of your creditors are financial institutions, (banks and credit cards)
- If you genuinely believe that your financial difficulties will be very short lived and your income will rise very significantly inside the next 6-12 months
- If own your own home or have another asset of significant value to protect
- If your liabilities are not so large that repaying them in full remains a realistic prospect.
If I don’t like the idea of a DMP, what should I do?
Anyone who suggests there is a one size fits all answer is probably trying to sell you something. The only person who is qualified to offer advice on all the options is a Licensed Insolvency Practitioner such as Gibson Hewitt. Only after you have explained your circumstances will we discuss the pros and cons of the various options. The first meeting is free.
If you are struggling with debt, contact Lynn Gibson on 01932 336149 for more information or to arrange an initial FREE meeting at which we can explain your options.