Having a debt management plan (DMP) may make paying off your debt more manageable but you might find that your overall debt actually increases over time.
This page explains why your debt might increase while you're in a DMP and what you can do about it.
Why has your debt increased?
It's not uncommon to find that even after making several payments on your DMP, your overall debt has increased. The most common reason for this is that your creditors may still be charging you interest and late fees on your debt. If this happens, it will take longer to pay off your debts and your overall debt may increase if your monthly payment doesn't cover the interest and charges.
Can you get the creditors to freeze the interest?
Your DMP provider will normally try to negotiate with your creditors to freeze any interest and other charges when they set up your DMP. They should tell you which creditors have agreed to this and which have not before you start your DMP.
If some of your creditors haven't agreed, you can ask your provider to try negotiating with them again. You might also want to try contacting the creditor yourself to see if they'll agree to freeze the interest and charges.
Can you increase your payments?
The amount you pay into your DMP doesn't have to be set in stone. If your debt is increasing because of interest and charges, you might want to think about whether you can afford to increase your monthly payments. Think carefully before you do this, as you don't want to over-stretch yourself and find out that you don't have enough money left to pay for your priority debts and essential living costs.
If you think you can afford to increase your payments, speak to your DMP provider who will help you work out whether this is possible.
Is a DMP still the right choice for you?
If it's not a good idea for you to increase your DMP payments, you might want to re-consider whether the DMP is the right choice for you. There may be other options which could help you manage your debts without increasing the amount you owe.
Remember that a DMP isn't legally binding, so you do have the right to cancel it, although you may not get a refund of fees or charges. Think carefully before cancelling your DMP or choosing another debt solution.
Were you misled?
Your DMP provider must give you full information about your monthly payments, the total cost and how long it will take to pay off your debt before you sign a contract with them. They should also give you details of which creditors have agreed to freeze interest and charges and which ones haven't, along with information about how this will affect your DMP.
If your provider didn't give you this information, or made promises about reducing your debt which have turned out not to be true, you may have been misled. You should think about cancelling your DMP and making a complaint about the provider.
Next steps
FAQs
Why has your debt increased? It's not uncommon to find that even after making several payments on your DMP, your overall debt has increased. The most common reason for this is that your creditors may still be charging you interest and late fees on your debt.
What happens after a debt management program? ›
You'll make on-time payments
Not only will you have a much easier time making on-time payments via a DMP, but your creditors may “re-age” your delinquent accounts to make them current. All these accounts will be recorded as on-time payments as long as you make your DMP payment on time.
What happens after 6 years on a debt management plan? ›
What happens when my DMP is finished? The debts associated with your DMP may still stay listed on your credit report until the six-year period is up from when they were added – if they have defaulted or there are CCJs associated with them, for example – but the marker for your DMP will be removed.
Can I reduce my debt management plan? ›
Can you reduce the payments? The amount you pay into a DMP doesn't have to be set in stone. If you're struggling to make the payments each month, ask your provider whether it's possible to reduce the monthly payments. Bear in mind that if your payments are reduced, your debt may take even longer to pay off.
How long after a debt management plan can I get credit? ›
The 6-Year Mark in a DMP
In the UK, most negative information stays on your credit report for 6 years. This includes missed or late payments, defaults, and other markers of financial difficulty. Therefore, after 6 years, these markers start to disappear from your credit file, which can improve your credit rating.
What is the disadvantage of debt relief program? ›
Creditors are not legally required to settle for less than you owe. Stopping payments on your bills (as most debt relief companies suggest) will damage your credit score. Debt settlement companies can charge fees. If over $600 is settled, the IRS will view this debt as a taxable income.
What is the maximum debt for a debt management plan? ›
There isn't a fixed maximum debt level for a DMP. What's more important is whether the plan can help the debtor manage and clear their debts in a reasonable amount of time. If someone has a very high level of debt, there is a chance that either the monthly payments or the duration of the DMP would be unrealistic.
How do I get out of my debt management plan? ›
To cancel your DMP, you need to contact your provider and ask to cancel. They will inform your creditors that the agreement has been cancelled, so you can expect to start dealing with them yourself again.
What happens if I can't pay my debt management plan? ›
You must make consistent payments to keep the benefits
In order to keep the benefits of your debt management plan—lower interest rate, smaller monthly payments and more—you must make consistent monthly payments. If you don't, you might lose the benefits.
What happens at the end of a DMP? ›
When your DMP ends, you can close the accounts you've paid off, or start making full payments again. Your score should recover over time if you continue to meet all repayments. Records of your debts will take six years to drop off your report, but lenders may pay less attention to them as they age.
- > Debt Recovery Process.
- Debt Recovery Process. When collecting a Commercial debt there are four main steps that we need to go through. ...
- The Four Steps of Debt Recovery.
- Step One: Letter Before Action. ...
- Step Two: Legal Action. ...
- Step Three: Judgment. ...
- Step Four: Enforcement.
Debt collection can generally be split into three different stages: pre-legal, legal, and enforcement. Pre-legal has quite a wide-ranging definition; generally, however, it refers to any action being taken before proceedings are issued and can include emails, texts, letters, and phone calls.
What happens if a debt collection agency comes after you? ›
Beyond contacting you directly, they can take you to court and sue for what you owe them. If they win—or you don't show up in court—they may be able to take money from your bank account, garnish your wages or place a lien on your property.
