What is a Debt Management Plan?
Read our guide to debt management plans to learn about DMPs, how they affect your credit, and how Lowell can work with you if you have a debt management plan.
If you're having a difficult time dealing with debt, you may be considering a debt management plan.
A debt management plan, or DMP, is a type of repayment plan, that will be set up and managed by an organisation that specialises in helping people with debt.
Before you decide to enter a debt management plan, you should know the facts. Read our guide to debt management plans to learn more and find out how Lowell can work with you if you have a debt management plan.
What is a debt management plan?
A debt management plan is an informal agreement between you and your creditors about your debts. You'll pay one monthly payment, which will be split between your creditors. The debt management plan provider will manage your debt on your behalf and deal with your creditors directly.
How does a debt management plan work?
If you decide to use a debt management plan (DMP), you'll work with the organisation to review your finances. They might appoint a counsellor, who will listen to your circumstances and help by giving professional advice.
They'll help you to understand your options, and then talk to creditors on your behalf to work out a new payment plan. Creditors may agree to waiver fees and lower interest rates.
Your DMP provider and counsellor will look at your finances and work out an affordable payment that works with your budget, that you can afford to pay each month.
Having a debt management plan means that your DMP provider will deal with your creditors. For example, if you decided to work with StepChange and one of your debts is owned by Lowell, StepChange would speak to us on your behalf, and we'd work with them to agree an affordable and reasonable plan.
We understand that some of our customers may have other debts with other companies. If you decide that a debt management plan would help you to manage those debts, we have plenty of experience in working alongside our DMP providers and managing your account, so you don't have to worry.
How long does a debt management plan last?
The length of your debt management plan really depends on how much debt you have, and how much you are able to pay each month. But because DMPs are flexible, if you have an increase in income or a new job, you might be able to increase how much you pay each month and work towards clearing your debt sooner.
Because a debt management plan is an informal arrangement, you're not tied into it for a minimum period and you can cancel the plan at any time.
Is Lowell a debt management plan?
While working with us directly allows you to manage a debt that's owned by Lowell with an affordable payment plan, Lowell Financial don't offer debt management plans like the plans you can get by working with StepChange or similar agencies.
If you decide that a debt management plan is right for you, your DMP provider will work with Lowell and any other creditors on your behalf.
If you're already working with Lowell and you're struggling to make payments, get in touch to talk to us about it. We know there are often many reasons why a payment might get missed, so it's always best to let us know what's going on. Whatever your situation is, we'll make sure you have the time and space you need while things are tough. We'll make sure you have the help and support you need, and work together to figure out the best way forward for you.
If you decide to work with a DMP provider and you would like them to manage your debt on your behalf, you don't have to worry about organising it. They'll contact us to agree an affordable plan and we'll continue to work with them while your DMP is in place.
Should I get an IVA or DMP?
The choice between a debt management plan and an Individual Voluntary Arrangement, or IVA, depends on your circumstances. An individual voluntary arrangement is a different kind of debt solution, and an alternative to a DMP. You can find out more about IVAs and other ways to handle debt in our guide to debt solutions.
IVAs are a more formal debt solution, and usually involve committing to pay off your debts within a five-year time frame. In an IVA, you commit to making payments to your creditors, like you would in a DMP, but an IVA is legally binding, and at the end of an IVA, any outstanding debt may be written off.
However, the requirements for entering into an IVA are stricter than a DMP. You should also be aware that arranging an IVA can come with fees, but these fees will be included in your monthly repayments and you don't have to pay them upfront. You can find out more about IVAs at StepChange.
If you think you need a DMP or IVA and you're already working with Lowell on a payment plan, let us know that your circumstances have changed and we'll discuss the best way forward for us to work together.
Debt management plans and credit
Being on a debt management plan can affect your credit, and it's possible that using a DMP can have a negative effect on your credit rating. But in the long run, it can be better for your credit file and credit score to make regular payments through a debt management plan than risk missing payments.
How does a debt management plan affect your credit?
Being on a debt management plan could affect your credit file and credit score. For more information about your credit, we have a helpful guide to explain how your credit file affects you in our Lowell debt guidance section.
If you're on a debt management plan, it might be that your monthly payment on the DMP is less than the amount you originally agreed to pay with your creditor. If this is the case, your credit file will show 'partial payments,' which can lower your credit score. Most creditors will add a flag to your credit report to reassure further lenders by telling them that you were using a DMP to manage your debt.
It's worth pointing out that making reduced payments through a debt management plan may still look better in the future to a potential lender than the alternative of many missed payments. This can help with applying for credit in the future.
Whether you're working with Lowell directly on a payment plan or managing your debt through a DMP, making regular payments - even if they are partial payments - helps to show that you're taking responsibility for your debt and taking action to clear it. Once your DMP is complete, you have the chance to work on improving your credit score and rebuild from a clean slate.
How long does a debt management plan affect your credit rating?
Details of defaults and partial payments will be recorded on your credit file for six years from the date when they happened. After six years, they will be removed from your credit file guide, even if the debt that they relate to hasn't been fully repaid.
Once your debt management plan is complete and your debts are fully paid, you can start working to improve your credit score. Read our useful blog post on how to improve your credit score to get some tips and advice on where to start.
Can I get a credit card while on a debt management plan?
It may be possible for you to get a credit card or a mortgage while you're on a debt management plan. Some lenders will take into consideration the fact that you're paying your creditors through a debt management plan, but it could be more difficult to be accepted, or you might not be able to access better interest rates.
However, it may not be advisable to get a credit card, mortgage or other forms of credit while on a debt management plan. If you're paying a debt management plan, your goal is to clear your debt, so adding more debt - even if it looks like a good short-term solution - might not be helpful in the long run.
If you have a debt management plan and you feel you're struggling, speak to your DMP provider. They can offer advice and support to help you if you're going through a difficult time.
Debt management plans can be a solution if you're having a difficult time with debt, but make sure that you get independent help and advice before you enter into one. If you're working with Lowell and decide to use a debt management plan, we will always work with your debt management plan provider to agree on an affordable and fair plan for you. You can find more information about debt and working with Lowell in our debt guidance section.