What Are DPMs and How Can They Help Me?

What Are DPMs and How Can They Help Me?

What Are DPMs and How Can They Help Me?

Debt management plans, often referred to as a DPM, are similar to a Chapter 13 bankruptcy in the US or an Individual Voluntary Arrangement in the UK. The primary difference is that a credit or debt counselling service, financial advisor, or other professional assists with repayment plans rather than an individual going to court. For those with exceptionally high debt, entering into a debt management plan means arranging with creditors to make reduced payments, lower interest rates, or remove previous fees and penalties in order to make debt repayment more manageable. It allows the borrower to make concentrated efforts to get out of debt while still ensuring creditors are repaid.

In most cases, a third party makes DPM arrangements with an individual's creditors. The borrower pays an established monthly amount to the credit counsellor or other professional, which is then dispersed to creditors. In most cases, a small fee for such services is included in the monthly payment. Laws governing third party assistance are different in the US and the UK, so due diligence in researching options is advisable before pursuing a third party's assistance. However, many reputable service providers have pre-existing relationships with lenders. This allows borrowers to benefit more so than attempting arrangements on their own.

No matter if an individual establishes a DPM on their own or through a third party, the practice allows borrowers to manage debt in a way that still provides for their basic necessities. In some cases, it can prevent the loss of a home, vehicles, and other personal assets. Debt management plans reduce monthly payments, remove late fees and other penalties, as well as lowering interest rates on outstanding balances. However, borrowers must agree to abide by certain terms such as foregoing further debt creation and making monthly payments on time.

For borrowers drowning in seemingly insurmountable debt, a DPM may seem more agreeable than filing bankruptcy. However, borrowers should understand that debt management plans do not guarantee there will be no negative effects on the borrower's credit history or credit score. In some instances, debt management plans have the same or similar impact on credit history as a bankruptcy. However, allow debt to go unpaid, fees and interest to accrue, and other options will have a negative impact and do nothing to help manage debt or get out of debt. Given the alternative, for some borrowers a debt management plan is the more agreeable solution.

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