Debt Management Plans - A closer look
Get impartial, independent advice from leading debt charity, the CCCS, on how to take your first steps to get out of debt.
Last year, CCCS hit several significant landmarks in the ever-continuing development of its free-to-client services.
Firstly, CCCS received over 330,000 calls to its helpline in 2009, a 14% rise on the previous year. Over 150,000 people also used our online counselling facility Debt Remedy; two-thirds more than 2008.
CCCS also dealt with over 100,000 debt management plans (DMPs) simultaneously for the first time, accounting for over £3 billion of unsecured debt. DMPs help people manage debts when they are unable to maintain contractual payments to creditors due to financial difficulties.
Repayments from these by CCCS to creditors topped £20 million a month for the first time, totalling £251 million over the year as a whole, proving the severity of UK problem debt.
These figures are more startling when put in context. Fewer than 25% of clients making contact by the helpline were recommended DMPs as the most suitable course of action in 2009, and fewer than 30% of people counselled online.
For the majority of people therefore, repayment simply isn’t currently an option, although CCCS’s objective still remains to help people pay back what they owe wherever possible. A DMP is an effective way of becoming debt-free.
You can arrange a DMP yourself, but a third party can also arrange this on your behalf. They act as an intermediary between you and your creditors. Many companies provide debt management services, but most will charge substantial fees. A number of charitable, non-profit organisations, such as CCCS, provide free DMPs.
A DMP is not always suitable for everyone and so it is essential to first work out a budget you are able to live on, which excludes payments to your debts. This will help you to stay in control of your spending.
- Adopt our goal: Draw up a budget
After you have done this, if you have an available monthly surplus to pay your debts, then you or your third party organisation can write to your creditors to arrange a monthly payment you can afford.
Your creditors don't have to accept the offer, but a rigorous budget demonstrates what you can reasonably afford and that you are genuine. Payments are usually still made, showing you are intent on paying back your debts. Creditors also receive details of payments to your other creditors, proving they are being dealt with fairly.
As a debt management plan is not a legally binding agreement, your creditors are also not obliged to freeze interest. However CCCS has excellent relationships with creditors, and often finds requests to stop interest and charges being added are accepted.
The fact that DMPs are not legally binding also means that plans are flexible, and can be reviewed and changed accordingly, if your circumstances change for better or worse.
If a third-party arranges your DMP, you normally make one monthly payment to that organisation, which then splits and distributes the amount fairly between your creditors.
If you have to pay a fee for a DMP, the debt management company deducts this before distributing the remaining available money to your creditors. They will probably take your first two payments in full, as administrative charges, before making any payments towards your debts.
CCCS offers DMP's free-of-charge to clients, so every penny you pass to the charity to disburse on your behalf goes towards repaying your creditors, allowing you to become debt free more quickly.
CCCS is contactable by its free helpline (0800 138 1111), open 8am to 8pm Monday to Friday, and by using the 24 hour online Debt Remedy system (www.cccs.co.uk).