Solve Debt Problems with a Debt Management Plan
Debt Management - Overview
Is your income stretched to the limit?Your income is stretched to the limit and now with higher interest and increased minimum payments on credit cards, mortgages and loans your really struggling to make ends meet. Under these circumstances, you maybe eligable for Debt Management.
What are the risks?
As we know, Banks, Building Societies, Credit Card Companies and Loan companies take a dim view on customers who fail to keep up their monthly repayments on their credit and loan agreements. If your struggling to meet those monthly payments, these financial institutions will excerice their muscle to recoup and outstanding debt owed, plus interest. Some of the ways in which they can do this are as follows:
- File for Bankrupcy
- Repossesion of property & other assets
When is a Debt Management Plan suitable?
Debt Management offers an alternative to the above options, which most people in this situation would only ever consider as a last resort. Anyone who has unsecured debts that they can't afford to repay and owe money to more than one creditor would be considered suitable for Debt Management.
What does a debt Management Plan Require?
A Debt Management Plan requires that the person has a surplus income each month. (Money left over after having paid all living costs and household bills from income).
What are the advantages of a Debt Management Plan
- One monthly payment is paid to the Debt Management Company who
distribute all of the payment on a pro-rata basis to creditors after deducting
the administration fee - Interest and charges may be frozen in some cases depending on the
creditors policy, so the debt doesn't increase. - The monthly payment is calculated on what is affordable, based on incomings
and outgoings. - North Mortgages negotiate on the client's behalf with their creditors.
- North Mortgageskeep the client fully informed with quarterly payment statements
Creditors may still write to the client but North Mortgages encourage them to contact us instead.
This can often reduce the number of calls and letters to the client.
What are the disadvantages of a Debt Management Plan
- It isn't legally binding, so creditors can proceed with court action.
- Depending on the amount of monthly payments and the size of the debt, it
could take several years to clear the debt.
Is it a loan?
No, a debt management plan is exactly what it says, a way to help manage debts. North Mortgages doesn't buy the debt from the original creditors. What they do is to help to manage the debts by offering a reduced payment to each of the creditors and then negotiate to freeze interest and charges.
How long will a Debt Management Plan last?
The length of the Debt Management Plan depends on each individual situation. It also depends on the level of debt and monthly surplus. If creditors freeze interest and charges, the length of the Debt Management Plan can be dramatically reduced. For example: If £12,000 is owed and the client can afford to pay £200 per calendar month the DMP will last for just over 5 years (60 months). This applies only if the payments are maintained each month and the creditors freeze interest for the duration of the plan. However, if the creditors do not agree to freeze interest and the some of the companies will not, then the periodof repayment will be longer. The Debt Management Plan can be completed sooner your circumstances improve and their payments can be increased.
How much does it cost?
The cost for setting up the Debt Management Plan will be the first monthly payment that is agreed after negotaition with all the creditors and thereafter, an adminstration fee of 15% of the monthly payment is charged.
How much will each creditor get?
This depends on the surplus income (i.e. money left over every month after paying all living expenses) and how much is owed to each creditor.
For example:
If there were three Creditors, as below:
Creditor Amount (% of total debt)
Total £9600.00
Credit Card £2304.00 (24%)
Store Card £1056.00 (11%)
Bank Loan £6240.00 (65%)
If surplus income = £210 per month, then the pro-rata payments to each creditor will be:
Creditor Amount (% of total debt)
Total £210.00 per month
Credit Card £50.40 per month (24%)
Store Card £23.10 per month (11%)
Bank Loan £136.50 per month (65%)
We will pay the agreed amount each month to each of the creditors, on the your behalf, after deduction of the administration fee.
How are the payments made?
The client pays monthly using one of two methods:
• Direct debit
• Cheque
Can It stop the Debt Management Plan when I like?
You can stop the at any time, but we ask that we are notified so we can inform all of their creditors. If you are experiencing further financial problems and cannot afford the payments and let's us know, we may be able to restructure the plan. Please note: Once the plan is cancelled, any creditors who have frozen interest may and will resume interest and charges.
Who informs the creditors of the agreement?
One of the benefits of a our service is that we will contact the creditors, explain the situation, provide them with details of your income and expenditure and make an offer of payment to them.
Will the creditors agree to the offer of payment?
Creditors don't actually have to agree to the payments in order for the payment to be sent the money. The offer will be what the client is stating they can afford and no more but they will always attempt to get the offer increased
Will my credit rating be affected?
A Debt Management Plan will not show on you credit file, however, if the your already in financial difficulty, the credit rating is likely to have been affected already. Whenever the full contractual payment isn't made, whether this is through a Debt Management Plan or not and even if the payment is just a few pounds short, it will still affect the credit rating as the your not complying with the credit agreement.
How will I know creditors are being paid?
North Mortgages will send a quarterly statement to the client setting out details of payments received from the client and payments made to the creditors You may occasionally be contacted by the creditors to say that they haven't received a payment from North Mortgages, which may be untrue; they may be asking you for more money directly, or there may even be a misunderstanding between departments. If you suspect the creditors aren't being paid or that a mistake has been made, then you should get in touch with our customer service team.
Can I continue to use credit?
We ask clients not to obtain further credit whilst in a Debt Management Plan. It can be considered fraudulent to take out credit that you know can't be repaid. The Debt Management Plan will make sure that the client has enough money to live on, so they shouldn't need to take out anymore credit. There are of course exceptions, such as a company credit card where the clients are not liable for the payments, but these should be declared to the customer services team to avoid any problems.
Will interest and charges be frozen?
Creditors aren't obliged to freeze interest and charges and this cannot be guaranteed. However, if a realistic income and expenditure statement is provided to creditors through a Debt Management Plan, then there is an opputunity of achieving this although there are some lenders whose policy is not to freeze interest. Creditors can be more cooperative when they see that the debtor is making every effort to clear their outstanding debts.
What happens to to secured debt?
Secured debts i.e. mortgage and car HP can't be included in a Debt Management Plan, and if you are unable to make the contractual payments to the secured debts you are at risk of losing the item to which the loan is secured on e.g. a car or house. The commitments for secured debts will be included in the income and expenditure. You should
never get into arrears with secured debt.
Is the property at risk?
Providing that you keep up the payments on any mortgages or loans secured on property. Then there is no reason why the property should be at risk. A Debt Management Plan isn'tlegally binding so you won't lose your home if you continue to make the agreed payments into your Debt Management Plan.
Which debts are included?
A Debt Management Plan will only help the client make reduced payments to unsecured creditors,
therefore the debts that can be included are:
• Personal loans (loans taken to purchase cars are fine but Hire Purchase (HP)
agreements cannot be included)
• Credit cards
• Store cards
• Catalogues
• Overdrafts
Secured debts can't be included in Debt Management Plans because any payments on secured debts
that aren't met in full, can lead to the goods being repossessed.
Will the client have to live on a tight budget?
To enter into and maintain a successful Debt Management Plan you will need to live within a budget, however this is discussed openly with yourself at the client meeting. North Mortgages are required to submit income and expenditure details to the clients creditors. It is in your interest to show creditors that they are prepared to make some sacrifices
to help repay the debts.
Why do clients have to change their bank account?
If you have a current account with a company who money is owed to, they will be required to open a new bank account. This is not only the case with a Debt Management Plan but you should change your bank account if you are going to make reduced payments to a company that you also bank with. Banks have the Right to Offset so any money in a current account could be used to pay another debt with the bank.
Can the creditors still issue the client with a County Court Judgement?
As a Debt Management Plan isn't legally binding creditors could still take action.
Will the client get a Default Notice?
By entering into a Debt Management Plan, the creditors can issue a default notice as the client is defaulting on the original credit agreement. If the client receives a default notice it doesn't automatically mean the creditor is going to take legal action. The default will appear on the credit file for 6 years from the date it was issued.
Can a client enter into a Debt Management Plan if they already have a CCJ?
CCJs don't prevent clients entering into a Debt Management Plan. The client will be required to provide details of the CCJ during their financial assessment.
