What is A Debt Management Plan?
A Debt Management Plan should be considered when you are fighting it hard to pay off multiple debtors and gain control over your personal finances. A DMP does not come with statutory protection available to some of the other debt solutions for Scottish residents. Similarly a DMP can be set up by the debtor himself without going through a money advisor or debt expert. But, this is more easily said than done since your ability to negotiate with creditors who are constantly harassing you to pay up can be fraught with problems. A better option therefore would be to work with a third party debt service provider. In most situations, this could mean that you find additional money to pay for the services of the third party. However, you can also explore the option of charity services to circumvent the charges.
Setting Up the DMP
To set up a DMP, you will first make an honest assessment of your debts, income and expenditure. This will help you create a realistic budget and see what your disposable income is. Remember that the disposable income is after setting aside adequate funds to meet your bare essentials like utility bills, mortgage payments, food expenses and other priority debts if any. The advantage when you choose an intermediary to handle your DMP is that they are in a more advantageous position to negotiate with your creditors since the third party would be dealing with your creditors almost every day. Once the intermediary takes over you can expect a breather from the constant harassment from your creditors. A DMP is incredibly practicable because of the clear framework it provides to clear your debts when your creditors agree. However, it is essential that you stick to the DMP payments with a high degree of discipline for this solution to deliver the results. If you foresee trouble making monthly payments under the DMP, you should explore other options. Failure to complete the DMP as agreed can only add to your woes and may lead to some of the other options being closed to you.
Write Off is Absent
More importantly, a DMP does not come with the advantage of a write off that is available with many other debt solutions in Scotland. Paying up your existing debt over a longer period of time and the ability to negotiate the cascading effect of interest and other charges are among the major benefits of a DMP.
No Bar on Legal Action by Creditors
Among the major disadvantages, the DMP being an informal solution, creditors are not under obligation to accept your proposal. While one particular disagreeing to your plan may not upset the apple cart, it can make it difficult for you to clear all your debts systematically. Credit counselors on the other hand can petition the creditors to accept the lower payment under the plan.
Being more of an informal arrangement you still run the risk of legal action by creditors and therefore this option should be chosen only when you have a firm grip over all the pros and cons of a DMP.