Do most creditors agree to a DMP?

A reader asks if most creditors agree to a Debt Management Plan?

man and woman shaking hands

I don’t have any statistics to quote, but most mainstream lenders presented with a sensible Income and Expenditure statement do initially agree to freeze interest and not add default charges. This can sometimes take a couple of months, and during this time you may be worried that things aren’t going well because you get letters or phonecalls that seem to ignore the DMP that is being set up, but this sort of problem normally gets resolved.

(The important exception to this is secured loans. If you have a problem meeting the repayments on your mortgage or a second secured loan on your house a DMP is not suitable for you – you need to get help urgently from  your local Citizens Advice Bureau.)

The more creditors you have, especially if they are sub-prime or Payday Loans, or if you don’t feel you can cope dealing with your creditors, the more it makes sense for you to get help with your DMP, through StepChange or Payplan  or your local Citizens Advice Bureau. Do not go to any company that will charge you a fee – whatever the company tries to suggest, banks and other lenders are not more likely to accept a DMP proposed by one of these companies than a free DMP from StepChange or Payplan and the fee means that your debts will be cleared more slowly so the DMP will last much longer.

I usually try to discourage people from worrying about whether their creditors will freeze interest. It depends on your situation and on their policies – knowing what ‘most’ creditors do with ‘most’ DMP offers doesn’t say anything very useful about what will happen to yours.  And anyway, if a DMP is the best option for you at the moment, it is certainly worth giving it a go. If you can’t meet the minimum monthly payments on your debts then you simply can’t pay as much as your creditors want, whether they ‘agree’ to your DMP or not!

If after a while many of your creditors are still adding interest and charges, so your debt situation is getting worse, then you may have to look at alternative options but worrying about that before your DMP has started is premature.

It is also possible that creditors will agree initially but will want to look again after 6 months or a year. And equally you should keep your DMP under review – a DMP is not a formal agreement that is guaranteed to last until your debts are cleared, but the flip side of this is that if you circumstances change you can alter or end the DMP.

Comments

  1. Debt Camel says:

    Update to this post:

    Here is another good reason to never go to a debt management copany that charges fees – “Collapsed debt management firm Smooth Financial Consultants used customer payments to fund a cashflow shortage in the business instead of passing the money to creditors, new documents have revealed.” ie they took your monthly payments and spent them, instead of dividing them up between your creditors :(

    Full details http://www.credittoday.co.uk/article/16031/online-news/deficit-emerges-after-collapse-of-debt-management-firm

  2. M. Howden says:

    My problem is that after 6 months all my creditors except one have frozen interest but that one is the largest! DMP co (one of the free ones) just say they can’t be made to freeze interest. Is there anything that can be done?

    • Debt Camel says:

      hi M. there is no way to MAKE them freeze interest, but it is worth you asking. I’ll do a post with a template letter for this next week.

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