A reader asks if most creditors agree to a Debt Management Plan – will they accept your offer of payment and agree to freeze interest and charges?
I don’t have any statistics to quote, but most 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, for example through StepChange 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 and the fee means that your debts will be cleared more slowly so the DMP will last much longer.
Don’t worry about freezing interest at the start
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 can write to them ask them to reconsider. There are template letters here that you can use. 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 you too should keep your DMP under review – it may be your best option at the moment, but this may change. 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 your circumstances change you can alter or end the DMP.