Do I Qualify For a Debt Management Plan?
Debt management plans are one of the most popular solutions to resolve personal debt problems. We consider what criteria you need to meet to qualify for a debt management plan.
If you have unsecured debt that you cannot repay, one of the options you can consider is a debt management plan (DMP).
A DMP enables you to reduce the amount you pay towards your unsecured debts each month so that your payments fit within a budget that you can afford.
This gives a considerable advantage. However a debt management plan is not for everyone. There are some important criteria that you need to consider.
Not all debts can be included
You can only included unsecured debts in a debt management plan.
Unsecured debts include bank loans and overdrafts, credit and store cards, catalogue debts, doorstep and payday loans. If you have these types of debts they can be included.
You cannot include secured debts such as mortgage or secured loan debts or a vehicle HP. If you do not continue to make these payments, you risk the home or car being repossessed.
In addition although they are unsecured, you cannot include tax debts in a debt management plan.
If you owe money to HMRC in the form of income tax or VAT particularly as a sole trader, a DMP will not be for you and you should consider an individual voluntary arrangement which can include HMRC debt (IVA).
A sensible payment is required
There are no rules governing the amount you have to pay into a debt management plan each month.
The amount you pay is based on your disposable income. This is your income less the amount you need to spend on reasonable living expenses each month.
However, because you will still be responsible for paying your entire debt back if you use a DMP. Unless you can pay a reasonable amount each month, repaying your debt could take an extremely long time.
For this reason it is only sensible to use a debt management plan if you can repay your debt within a five year period.
If not, you should consider other debt management options or view the DMP as a temporary measure to give you a breathing space until your financial situation improves.
There are no other real qualification criteria for a debt management plan. However there are some things which you should consider when deciding if a DMP is suitable for you.
Legal protection & interest charges
Because a debt management plan is ultimately the result of a private agreement between you and your creditors it gives you no legal protection from them. This means that they are still able to take legal action against you to collect their debt if they wish.
Legal action could take the form of applying for county court judgment against you or applying for a charging order against your property if you are a home owner.
Your creditors also have no obligation to stop adding further interest or charges to your accounts. As such, although you are paying money towards your debts each month, the balances will not drop as quickly as you expect and in some cases may even increase.
Your creditors may decide to suspend these charges on the basis that you maintain your DMP payments. However there is no guarantee of this and from the time you decided to start a DMP, some interest will undoubtedly have been added.
If you want to ensure that legal action and further interest and charges are stopped and that you know exactly when your debts will be settled in full, an individual voluntary arrangement may be a better solution for you.
Consider all your options
Because a debt management plan is not a formal legally binding solution, most people will qualify to start one.
However, this does not mean that everyone with debt problems should us a DMP.
If your debts are secured, you have HMRC debt or debts that you simply cannot afford to pay in a sensible period of time based on your disposable income a DMP may well not be the right option.
Before deciding to start a DMP you should therefore also carefully consider the other solutions.
You can then make a sensible informed choice about the solution that is best suited to deal with your particular problem.
What to do next? If you are struggling with debt, visit beatmydebt.com
Our experts are available to speak to you about your debt problem and offer advice and debt solutions.
How the Citizens Advice service can help young people who are struggling to manage money and debt problems.
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Leave a commentGetting Rid of Credit Card Debt The Right Way
The number of Americans who hascredit card debthas been steadily increasing in recent times. People arebeginning to lessencredit card debt on many accountsand areholding higher amounts on each. For many people, rotating personal credit card debthas become a serious problem. Here are some tips in getting rid of your credit card debt the right way:
Don’t Be Afraid to Cancel Your Credit CardAccounts.
Once you havepaid off or transferred thebalance of your credit cardaccount, cancel the account. Once you’re out of credit card debt, you will probablywant to keep a coupleof credit card accounts active. This will improve your credit rating. So as early as possible, choose the accounts that offer the best interest rates. Pay off and cancel all of yourcredit accounts as you settle your debt.
Having a great number ofcredit accounts can ultimately harm your credit score, as well as heighten thetemptation to spend more money. This would only lead you back to the credit card debt you’re hoping to getout of now.
The creditorscan be extremely aggressive and resistant toaccount cancellation requests, but be firm and do not settle for anything less than acomplete cancellation of youraccount.
I oncehad to spend an houron the phone with a department store credit account representative assuring him again and againthat no, he didn’t do anythingwrong and yes, I want to cancel my card. It was worth it though, because I got rid of one thousand dollarsof credit card debt,and that is certainlyexcellent!
Professional Debt Consolidationand Counseling
If you’retrying to address your unsecured debt, you might want toconsider consulting a financial advisor.
Hire a professional– an accountant, a debt consolidator, etc. — who canhelp you evaluate your predicament.Develop asolid, long-term operating planthat considers your income, yourself lifestyle, and your outstanding debts.
A trustworthyfinancial planner and arealistic credit card debt planshouldn’t offer simplesolutions; credit debtis a significant issuethat requires effortand determination fordeal with successfully
Aside fromfiling for bankruptcy, two of the mostpopular programs for getting rid of credit debtare credit counselingand debt negotiation. Contact severaldebt consultants to weigh the benefitsand disadvantages of theprogram.
Getting rid of credit card debt can be a challenge, especially if you carry more than ,000. Read on for sound advice to pay-off unwanted credit card debt in the most efficient method possible.
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How Do I Settle My Credit Card Debt On My Own?
Consumers with unmanageable or old credit card debt often ask themselves the question: How do I settle my credit card debt on my own? Third party settlement and credit negotiation companies often lead consumers to believe that the only way to settle credit card debt is through their services. Fortunately, negotiating credit card debt is something that you can do on your own.
Step #1 – Make sure that you can afford to settle your credit card debt. Review your budget. It’s a good idea to make sure that you can take care of your basic needs first. Such needs include food, shelter, utilities and transportation. Unless you’re being threaten with a credit card lawsuit, you might also find it advantageous to set some emergency money aside before settling a credit card debt.
Step #2 – Collect all the needed information to settle your credit card debt. Contact your credit card company. Whenever possible, it’s better to negotiate credit card debt with the original creditor. Find out if the company is still handling your account. Make sure to get the total unpaid balance on the account. f you’re more than six months behind on payments, a collection agency is likely assigned to your account. If that‘s the case, get the agency’s name and contact number.
Step #3 – Offer to settle your credit card debt. You can make the offer by phone or in writing. Don’t make an offer unless your prepared to send in a check for the settled amount. When card companies and collection agencies accept settlement offers, they generally want the money within a few days, often the same day. Offer less than what you can afford to pay, as you’ll likely receive a counter offer. Typically, it’s better to offer one lump sum. However, if your creditor wants more than you can pay at the moment, creditors often set up a three-installment payment plan.
Step #4 – Request the terms of your credit card debt settlement in writing. Your credit card company or collection agency might tell you that you have to pay by electronic withdrawal the same day. Don’t do it. Unethical debt collectors often debit checking accounts for more than the agreed amount. Explain to the associate helping you that you’ll send a check or money order as soon as you receive a written contract. The contract should include the following:
The company’s letterhead
Your name and account number
The total unpaid balance on the account
The agreed settlement amount
Date by which the offer expires
The name of the person accepting the offer
Make sure that the document specifically states that the settlement is accepted as “payment in full.” Moreover, it should also state how the creditor will report the debt to the credit bureaus: “Paid in Full” or “Settled.” “Paid in Full” is your best option.
Step #5 – Mail in your credit card debt settlement check. Once you receive a written agreement, read it thoroughly. Make sure that all the agreed terms are included.
Type a letter to mind the company of the agreed terms. Include the following sentence, or something similar: “By cashing this check you accept the amount of (type in your agreed settlement amount) as payment in full for the debt referenced above.” Include the account number and the unpaid balance at the top of your letter along with your name and address.
Fill out a certified mail card. Check the “Return Receipt” option. Make a copy the letter and the settlement check. Keep the copies for your records. Include the letter with your credit card debt settlement check and mail it via certified mail. Save the signed return receipt verification card once you receive it.
Step #6 – Make sure that the status of your credit card debt is updated correctly on your credit report. Wait about 60 days after you mail your check before checking your credit report.
In summary, you can settle your credit card debt without the services of a third party. Remember to request a written agreement before mailing your settlement check or money order. Read the contract thoroughly. Make sure that the check is received by the date and time specified in the agreement. Failure to meet the agreed specifications could void the contract, and you could be liable for the remaining balance. Finally, never give a credit card company or collection agency access to your bank account.
Disclaimer:The author of this article does not have financial or legal background. The information in this article is for information purposes only. Seek legal or financial advice regarding your particular circumstances.
Advice for students with credit cards and bad debt
It can be really tempting for students with credit cards to create bad debt. Students can be very busy with school and studies that they are unable to work and keep up with their expenses. Therefore, it is imperative that they stay up on their debt and manage their money well.
The first step that you need to do is to learn how to manage the little money you have properly. Set yourself on a budget. Your student loans will be piling up and bills will keep coming in. It will lead to a stressful situation that you will not have time to deal with, and haunt you in the future.
Make a list of your bills and expenses. Be sure to include everything from monthly bills, to going out to dinner with your friends. Once you have completed this list you can see if there are any costs that you can trim, such as lowering your cell phone plan.
Obtain a free copy of your credit report. You are entitled to a free copy of your credit report once a year and it is recommend that you get one to stay on top of things. Checking your credit more than once a year could be harmful to your score, with many inquiries.
Try to lower your credit card balances. If you have any free time between classes you can always pick up a part time job, to help you along the way. Consolidate all of your credit cards into one, preferably the one with the lowest interest rate.
If you do not have any credit cards and already have bad credit, now is the time to see if you can get a small consolidation loan to pay back and start rebuilding your credit. You have your whole life ahead of you, and you want to stay on top of things so that you can have a home in the future. Work with your local bank to see if you can get a small personal loan, probably with a higher interest rate, and start rebuilding your credit.
It is not easy when you are in school to work and juggle everything, but it is important in become a financially responsible person. See if you can pick up small and easy jobs for a little money on the side so that you do not have to use your credit cards for everything. They should be used for emergencies.
It is typical to make mistakes when you are young, but it is important to learn from them and correct the problem before it becomes bigger than you can handle.
Debt Advice for Finance Professionals
Article by Chris Jenkinson
When you are seeking debt advice, you will hear lots of different stories. Everyone will have their own quick fix for your debt woes. You will hear stories from people about how they had all their problems erased by filing bankruptcy. They will tell you that they went from owing lots of debt to having no debt at all.
One thing these people do not tell you, however, is that filing bankruptcy will bring unexpected consequences to your life. For example, you may not be able to keep your home. If you own a business, it may have to be closed too. You could have to inform potential employers that have filed for bankruptcy. Some of these companies may not hire you due to this.
Other people might tell you how they tried to negotiate with their credit companies or the companies that hold their loans. They might tell you that these companies are not able to be negotiated with. With a professional credit counsellor at your side, however, many credit companies are willing to negotiate with their customers. Indeed, many of these credit companies are willing to offer very attractive options in order to help their customers to get back on their financial feet.
Debt advice is really quite straight forward. There are no easy and quick fixes,though. It will take time for a credit counsellor to gather the facts about your finances from you. You will then be presented with choices that the credit counsellor suggests could be in your best interest based on their vast wealth of knowledge. In addition, the credit counsellor will answer any of your questions regarding the options available to you.
You don’t have to be alone in the debt process. A professional credit counsellor could be there with you every step of the way in order to ensure that you understand what is happening. The credit counsellor will try to negotiate the lowest possible monthly payment from your creditors for you. This is so you have more money in your pocket each month. Having more money will help you get to the end of each month before you get to the end of your money. Help also requires a change in lifestyle and the combination could help you get closer to financial freedom.
It is important to make sure that you are taking debt advice from a professional who is trained in financial matters. This will help to ensure you are given the correct information from the most up to date sources. Professional credit counsellors must stay abreast of the latest news and developments so they are able to help consumers.