Will Interest Charges Be Stopped If I Do A Debt Management Plan?
Debt management plans are used by thousands every month to tackle personal debt problems
. But beware, if interest and late payment charges are not stopped, your balances could continue to increase every month.
The first priority if you find yourself struggling with debt is to reduce your monthly payments.
This will stop the need to borrow from one creditor to pay another and get you back in control of your finances.
The primary function of a DMP is to achieve just that. Creditors agree to reduce monthly debt repayments to an affordable amount.
However, what is often overlooked in the rush to reduce monthly debt payments is that debt management plans are not legally binding agreements.
No obligation to stop interest
This means that if agreed, creditors are under no obligation to stop charging interest and any late payment charges.
If interest and charges are continually added to your account balances while you are in a DMP, you may well find that even though you are paying back what you can afford each month, your account balances are still increasing.
It is therefore critical when negotiating with creditors that they agreed that they will stop or at the very least reduce their charges.
Many creditors will agree to this. However, very often they will only do so once they see regular monthly payments paid into your plan. It may take three to four months for this to happen.
Maintain your payments
Most creditors will also reserve the right to start adding interest again if you do not maintain your payments. It is therefore critical that the agreed amounts are paid on time each month.
There is no guarantee that all of your creditors will stop their interest and charges and therefore when starting a DMP you must be prepared for this.
If one of your creditors simply refuses to help, there is really very little you can do.
In this situation the best thing is to try and save a little each month from your agreed expenditures. In time you may be able to generate a lump sum which could be used to offer as a settlement for the debt.
An alternative
The only way to guarantee that no additions will be made to your accounts is to consider the alternative to a debt management plan called an individual voluntary arrangement (IVA).
One of the advantages of an IVA is that it is legally binding. Once agreed, your creditors must stop all further interest charges.
A debt problem can be extremely stressful and worrying. Reducing the amount you pay to your creditors is a priority and a debt management plan will achieve this for you.
However, when deciding how best to deal with the situation, it is important to consider the longer term implications such as whether interest and charges will still be added to your accounts.
Using a DMP will not guarantee that such charges will be stopped.
This is not a reason to avoid a debt management plan. There may be many reasons why this solution is the right one to implement. One option is to use a debt management plan to give a short term breathing space.
If after a few months, you find your debts are not reducing, there is nothing to stop you revaluating your situation and changing to an alternative solution such as an IVA.
by: Steve Jackson
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