A DMP or "Debt Management Plan", in the traditional sense, was an agreement between a borrower and his or her creditors, set up by a county court. The court made an assessment of the borrower's ability to repay his or her debt after essential outgoings, such as mortgage or rent payments, utility bills, etc. were taken into account, along with a reasonable allowance for food, clothing, etc. and fixed repayments accordingly. Nowadays however, there are a number of different ways of setting up a DMP, ranging from approaching creditors yourself, to having one of the charitable debt organisations or a commercial debt management company approach them on your behalf. A DMP arranged in one of these ways works in the same way as one arranged through the courts, insofar as interest is often frozen and disposable income, if any, is divided amongst non-priority creditors once priority debts have been taken into account. The added complication with a commercial debt management, of course, is that you will charged a fee, often equal to your first monthly repayment or more, plus a percentage – typically 15% – of subsequent monthly repayments to cover administration costs. It is therefore up to you as a borrower, to decide whether you are happy to negotiate and administer repayments yourself, or whether is it worth paying a fee to have someone perform these tasks for you.
Debt Management Companies
Aside from setting up and administering a DMP yourself, which may be unappealing, your remaining options are a charitable organisation, such as the Citizens' Advice Bureau, Consumer Credit Counselling Service (CCCS) and National Debtline, or a commercial debt management company, of which there are now over 150 in the U.K.. The basic difference between the two – which may not always be immediately obvious, if you read the advertising blurb of some commercial companies – is that the debt charities provide expert impartial advice and support completely free of charge, while commercial companies are out to make a profit by one means or another; their advice may be free of charge but may not be impartial as companies are obviously keen to promote their own services.
With the U.K. still in the deepest recession since World War II, unemployment rising and Christmas approaching fast it is a sad fact that all the free debt advice agencies are struggling to keep up with the demand for debt advice. The Citizens' Advice Bureau for example, deals with in excess of 7,000 new debt problems every day, with consumer having to wait several weeks for an interview and the other agencies are facing similar backlogs. There is of course, nothing wrong with paying for a DMP, provided that it is administered by a legitimate licensed debt management company, which adheres strictly to Office of Fair Trading (OFT) guidelines. In fact, a commercial debt management company may be able to set up a DMP quickly and of course, will administer payments on your behalf. Furthermore, established reputable debt management companies often have excellent working relationships with various lenders and may be able to negotiate preferential treatment on your behalf; this may mean that any fees payable pale into insignificance when compared with the money that can be saved on repayments, so it is definitely worth shopping around to see what is possible. Above all, in uncertain economic times, it is important to find a company that you can trust to look after your interests as well as its own.
Some commercial debt management companies may describe themselves or their services as "Government" or "Government backed" and, for the uninitiated, this can be hugely misleading. These terms are designed to imply that a company is a Government agency, when in fact it is not, or that its services are endorsed in some way by the Government, when in fact they are not. Any commercial debt management company can legally claim to be "Government backed" insofar that the Government has introduced legislation governing the way in which DMP schemes are run, but that does not mean that the company concerned has anything directly to do with the Government. The Government does not manage debt per se and any company that attempts to convince you otherwise should be treated with extreme caution. Be wary too of commercial debt management companies that masquerade as non-profit organisations by using similar website addresses; the Office of Fair Trading closed down no fewer than 27 websites and took action against 13 companies earlier in the year for precisely this reason.