Can I cancel my debt management plan?
Unlike an IVA, or some of our other Debt Management solutions, a Debt Management Plan is not legally binding. This means that if you feel your plan’s not working for you, yes – you can cancel it. You should never do so however without consulting your DMP adviser, as the repercussions of cancelling can be severe.
What is a Debt Management Plan?
A Debt Management Plan (DMP) is an informal agreement between you and your creditors to pay back all your unsecured debt. Firms who set up DMPs are authorised and regulated by the Financial Conduct Authority (FCA), DMPs involve one monthly payment to your creditors, which will be agreed with you. Your plan adviser will then liaise with your creditors on your behalf, for the duration of your plan.
Should I think twice about cancelling my DMP?
Debt Management Plans are a great way of paying back your unsecured debt in full, without having to write off your debt. There are many positive aspects of a DMP, and they should always be acknowledged if you are considering cancelling yours.
One benefit of a DMP is that because you are still making payments to your creditors, they may in good faith decide not to default your account with them; the benefits of this are two-fold.
For one, if you default on a debt, you may suffer a range of extra costs by way of late fees/penalties amongst others, increasing the total arrears you owe. Secondly, a defaulted account can have a severe effect on your credit score, making it harder to obtain credit/loans in the future. Staying in a DMP and keeping your account active can be beneficial to your credit score in the long run, as defaulted accounts can stay on your credit file for up to 6 years.
What if I can no longer afford DMP payments?
There are a number of reasons why you might want to cancel your Debt Management Plan. It could be that since the agreement started, your financial situation has declined, and you are unable to make the payments initially agreed upon. Furthermore, your creditors might not agree to freeze interest and charges, worsening your financial difficulties.
You may feel you want to cancel your DMP purely because you cannot afford the repayments originally outlined within it. If this is this case, you must consider how you will approach these debts without a DMP. If the agreement is cancelled, creditors will continue to chase you for repayments, as well as most likely adding on late charges and increasing your interest rate.
Are there alternatives to cancelling?
If you no longer feel able to make the repayments outlined in your DMP, speak to your plan adviser as soon as possible. It may be that you change the terms and conditions of your plan, and reduce your monthly payments to better fit your financial situation. Conversely, if you find you come into a lump sum, you can make a full and possibly final offer to clear your debts. This can be done through your DMP adviser, who will assess your financial situation and prioritise which debts you pay off accordingly; you can also do this directly with your creditors if you wish.
Switch to a new provider
It may be that you want to cancel your DMP due to excessive charges by your plan provider. Are you thinking of cancelling your Debt Management Plan because of this reason? Why not consider switching to a debt advice company with no DMP fees?
When entering into a DMP, we believe every payment you make should go towards paying off your outstanding debt. This is not always the case, as some DMP providers charge for setting up the plan and also make monthly charges, as well as charging for consultation! Here at PayPlan, we believe in a DMP where every penny you pay goes to your creditors. We provide completely free DMPs, through every step of the process. Get in touch today to find out more.
What if I’ve changed my mind about a DMP?
We understand that financial situations are constantly changing. We sometimes find that an individual may enter into a DMP over the internet or phone in a bid to quickly regain control of their debts, but shortly after see their financial situation improved.
In this case, the individual will have a ‘cooling off’ period 30 days to cancel their DMP. They may potentially receive a full refund for any fees they may have incurred; the extent of the refund however will depend on the terms of the plan.
Alternative debt solutions available
Cancelling your DMP should never be the first port of call if you’re struggling to make repayments; doing so will likely result in your creditors chasing you for the outstanding debt, and increasing rates of interest repayments.
However, even if you decide that a DMP may not be right for you, you may still be eligible for another debt solution. PayPlan offers a variety of solutions suited for a variety of debt problems. To learn more about all the debt solutions we can help you with, visit our debt solutions page.