Debt Management

A debt management plan is an informal arrangement with your creditors which allows you to repay debts at an affordable level.

With debt management, all eligible unsecured debts are put into one payment you make to the debt management company who then makes payments to creditors on your behalf.

A debt management company (DMC) negotiates with your creditors and manages your payments to them. This arrangement is called a debt management plan (DMP).

How Debt Management Works

Payments are calculated based on what you can afford rather than how much you owe.

Debt Management Plan

Working out a budget and how much you can afford to pay your creditors is the first step to setting up a debt management plan

The DMC will help you draw up a budget to determine your disposable income and to produce a financial statement which details your debts, income, outgoing and assets.

Your disposable income is defined as how much you can afford to pay your unsecured creditors once you’ve met your living expenses and essential financial commitments.

If your financial statement shows you are struggling to pay your debts; but can afford more than the DMCs minimum payment (typically £80-£100) a DMP may be suitable.

Using the financial statement; offers of repayment are made to each creditor – pro-rata based on how much of the total debt is owed to each; in the hope this is accepted and interest and charges are frozen on all debts.

Your creditors require details of your assets, including your home, if you own it. This helps them decide whether offer is reasonable or whether they expect any of your assets to be sold so that they get a larger payment.

A creditor can choose not to accept any offer – they are under no obligation to do. Dissenting creditors can be paid anyway via the DMP; they can’t refuse payments. However there are at liberty to add charges and take legal action to recover the debt; or you can make arrangements to pay them outside of the plan.

Debt Management Plan

The individual or company managing your plan must be licensed and regulated the Financial Conduct Authority (FCA) (or have interim permissions).

Length of plan

A plan can last any length of time depending on how much is owed; what you can pay and to what extent interest and charges are stopped.

The DMC should give you an estimate of how long the plan will last; they can’t know for sure as this depends on creditor interest and charges.

Regulation and fees

Some DMCs don’t charge you a direct fee for their services, but get it from the creditors out of your payments. Others make an initial charge for preparing, negotiating and administering your plan and then take the rest from your regular payments.

In either case, before signing up for a DMP make sure you understand the fees and how you pay them.

The DMP company should review the plan yearly or at your request if there is a change in circumstances. Creditors expect to be given regular of your income and expenditure so they can see whether payments should be increased.

Debt Management Benefits

Fair and open

A fair and open way of sharing payments, widely understood by creditors.

Help with budgeting

The DMC helps you prepare your plan, which is used to put your case to the creditors.

Negotiations on your behalf

Offers are more likely to be accepted and interest frozen than if you try to do this yourself.

Flexible

You may be able to vary your payments if your circumstances change.

One payment

You make a single regular payment to the DMC, which administers all payments to your creditors. All payment should be passed on within 5 working days.

No Fees

Some debt management companies do not charge you a fee.

Debt Management Considerations

While there are benefits to a debt management plan, there are also important considerations you must take into account.

Entering into a DMP means contractual payments are missed and your debt and repayment term could increase.

Your credit rating will be impaired and it may be harder to obtain credit in the medium to long term as records are retained by credit reference agencies for six years.

The debt management company can’t force creditors to participate in a DMP nor freeze interest if they do choose to participate.

In a debt management plan, debts are repaid in full – however long this may take.

This is in contrast to formal statutory debt solutions such as a IVA or Bankruptcy where some debt is legally written off.

However, creditors may write off what you owe after a period of time if you have shown you’ve made every effort to repay them as much as you can; and you’ve not missed any payments

Creditors in or outside of the DMP can still take legal action against you.

Even if you are keeping up with payments, creditors could still take enforcement action against you, for example court action to get a charging order on your property.

This is because you have broken the terms of your original credit agreement and creditors can seek to get a Court order to enforce or encourage payment.

Having a charging order on your home means that the debt becomes secured on the property and if you don’t repay the debt, the creditor has a claim on the proceeds if the property is sold.

If your circumstances take a turn for the worse:-

  • Your disposable income may fall below the level your debt management company will deal with.
  • Creditors may reject your reduced payments offer.

If the arrangement fails and you do not make alternative arrangements to pay your creditors, there is a risk of bankruptcy if your debts are large enough.

While a plan can last for several years, some creditors may freeze interest for only part of this time – if at all.

As such, the total you repay could be more than the original debts, and could extend the lifetime of the plan.

It is your responsibility to continue to make payments to creditors that are not/cannot be included in your plan.

Failure to pay any taxes, fines, child support payments and other certain debts could result in a loss of access to essential goods or services or repossession of, or eviction from, your home.

Swift do not currently offer debt management plans. However we can assess your situation and explain all other options.

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