The CABmoney site now has over 1,000 people using it to manage their own debt management plans (DMPs). A reader commented that they liked the idea of being in control, but would this be a lot of work?
In a DMP, creditors are asked to accept a lower monthly payment and freeze interest and charges. They are described in detail here, which looks at their advantages and disadvantages, who they are most suitable for and what can happen when you are in a DMP.
You can use a company to set-up a plan for you, in which case you make one monthly payment to your creditors and the company divides it between your creditors. (NB don’t go to any company that will charge you a fee for this. There are excellent DMPs that are free for the user – these work in exactly the same way as the commercial DMPs.)
Or you can divide your monthly payment between your creditors yourself, with the CABmoney system calculating the amounts and generating all the letters and other paperwork for you. This article focuses on this in more detail, so you can see exactly what would be involved.
Setting up a DMP
Most of the work is done in the first couple of months when you are setting the DMP up. You have to:
- agree repayments with any priority creditors (you may not have any);
- change your bank account if your regular current account is with a creditor you are offering reduced payments to;
- stop your regular payments and cancel any DDs or recurring payments;
- write to your credit cards, banks etc, enclosing an Income & Expenditure statement (sometimes called a Statement of Affairs), and ask them to accept your offer;
- set up new payments to creditors by standing order;
- field the cross letters and phone calls that you get because you have stopped the normal payments – many of these are because they haven’t yet processed your offer letter!
The more creditors you have, the more work this will be. Some creditors are more difficult than others. You will probably be most concerned about payday lenders – though most of them have improved their procedures for dealing with clients in financial difficulties this is still more likely to be stressful than dealing with a major high street bank.
But much of this work has to be done by you, even if you use a firm to set up your DMP. You have to deal with your priority creditors, because they can’t usually be included in a DMP. You have to deal with your bank, including changing accounts if necessary. The DMP company will write to your creditors, but they may initially still write to you and phone you before the plan is really underway.
So out of those six points, you will always have to to 1,2,3 and 6. A DMP firm would take care of 4 and 5. If you go for “DIY DMP” this is the extra bit that you are taking on. If you use CABmoney, it does most of 4 for you, by generating the letters to creditors and the I&E statement for you to print and send.
Running a DMP
After the first few months, administering your DMP shouldn’t take long at all. The payments just leave your bank account each month. The most common things that happen are:
- sometimes a creditor will sell your debt to someone else. In this case you cancel the standing order to the old creditor and send the new one a Statement of Affairs together with your offer and ask for their bank details so you can set up a new standing order. This is most likely to happen in the fist year of your DMP, but it may occasionally occur afterwards.
- a few creditors will want to review your DMP every six months, especially at the start. If your situation hasn’t changed, then you just reply to their letter with one saying that there has been no change and enclosing a new version of your Statement of Affairs. This is a good point to check the balance remaining on this account.
- a creditor may take you to court for a CCJ. This isn’t common, creditors are much more likely to do this with debts where the client isn’t talking to them than where the client has proposed a monthly payment and backed it up with a Statement of Affairs. It is just as likely to happen if you are running your own DMP as if you are using a firm to do it. If it happens, you complete the court forms offering as a monthly payment what your DMP offer is.
If your income or expenses change a lot you may need to revise your DMP offers downward if you are finding it difficult to manage. If your income has increased, you have three choices:
- increase your DMP payments
- save up the extra and hope it will get large enough to make a full & final settlement offer
- spend the extra, especially if your bills have also increased.
Is there any other work involved?
Probably the largest chunk of work isn’t actually to do with the DMP itself, it’s the effort needed to keep within a budget – this has to be done whether you are running your own DMP or using a firm.
Running your own DMP does involve some extra work. If you only have a few creditors and they are high street banks and credit cards, then it won’t be a lot, especially after the first couple of months. If your creditor list is a dozen then it’s still do-able.
But if you have loads of creditors or many of they may be “difficult” or you are very nervous, then you may decide that you want the moral support and hand-holding from a DMP firm.