A Debt Management Plan (DMP for short) is an agreement between you and your creditors to repay your unsecured debt in manageable monthly instalments. Because a DMP is an informal arrangement, you are not lawfully obliged to remain within it until its completion. As such, you can choose to leave at any time from DMP to an IVA, or an other debt solution.
Why would you want to leave a DMP?
Different debt solutions suit different situations. Because circumstances are always changing, you may want to leave a DMP for a number of reasons. For one, the nature of a DMP means that creditors have no obligation to freeze interest and charges on your account. The increasing interest and charges may then become too expensive for you to cope with, and could worsen your situation rather than improve it.
Another reason for wanting to leave a DMP could be a change in your financial situation. You may find you have less coming in at the end of the month, and you can no longer afford the repayments initially agreed upon.
On the other hand, your financial situation may improve. Perhaps you’ve come into a lump sum via inheritance or otherwise. You want to use this extra money to pay off your debts more quickly. In this case, you can choose a debt settlement, to pay off part – or all – of your debt.
In an Individual Voluntary Arrangement (IVA) your Insolvency Practitioner can put these funds towards making a full and final offer to clear your debts.
What is an IVA?
An IVA is a legally binding debt solution and a form of insolvency,. It allows you to pay off a proportion of your debt over a fixed period of time.
Why might an IVA seem to be more favourable?
An IVA might be a preferred debt solution due to the distance it puts between you and your creditors. By law, creditors aren’t allowed to chase for your debt once you’ve agreed to enter into the IVA.
Furthermore, after a typical 5-6 year period any remaining debt is written off. Unlike in a DMP, where the repayments need to be made until the debt has been repaid, no matter how high the debt level may be.
Want to know more? Visit our IVA page.
Like a DMP, your IVA payments will be set at a rate you can afford. The amount will be reviewed at least once a year, although should you have a change of circumstances, you can ask to change the terms.
There are many different aspects to both DMPs and IVAs, and it’s important to fully understand them when looking to switch between the two debt solutions.
Are you thinking about switching debt solutions? Speak to one of the UK’s leading debt advice services today. You can get in touch with one of our advisers for FREE via Text, Phone, WhatsApp or email. Call us today on 0800 316 1833 . You can also click here for our FREE debt help tool.