Consolidating debt with a Debt Management Plan (DMP) is one of the solutions which can be considered by people who are in financial trouble due to personal indebtedness. DMPs are only one of a number of possible options, and other options such as consolidation loans, and even bankruptcy, may be more appropriate for some people. IVAs (Individual Voluntary Arrangements) are an alternative to bankruptcy, available to UK residents.
As the debtor has many options to consider, it is usually advisable to seek advice from a credit counseling organization. UK charities working in this field include the Citizens Advice Bureau (CAB), and the Consumer Credit Counseling Service (CCCS). There are also commercial businesses offering credit counseling, and these will charge some sort of fee for their services.
In the US there are also non-profit and commercial organizations offering credit counseling. Not all commercial firms are bad, but some are, and the FTC have received numerous complaints. It is wise to follow advice, such as the FTC's "Knee Deep In Debt" guideline, when choosing a credit counselor.
Normally the first action which should be taken by the credit counselor, is a review of the client's financial circumstances. As everyone will have different problems, the best solution will differ from client to client.
For example those who own their own residence will have options not available to those in rented homes. Consolidating unsecured, high interest debts into secured, lower interest debt is the right solution for some people, but they must always be made aware that this will put their home at risk if they are unable to make the repayments.
Those who are living in rented accommodation do not have that option, but many not have as much to lose from other options, such as the IVA alternative to bankruptcy, which is available in the UK.
After a full review of the client's financial situation, the counselor can normally be expected to make a recommendation of an appropriate solution for that client. Debt management plans (DMPs) are one option which could be recommended.
When the DMP is set up the client and counselor will work out a realistic monthly household budget for the client. Monthly income, and monthly outgoings must be reviewed and assessed. Necessary expenditure, such as food and electric power, must be separated from unnecessary, such as holidays and tobacco. Some debts may be identified as priority debts. These are usually debts where non-payment may have severe consequences. Examples are electric bill arrears, fines, taxes, mortgage arrears.
When the budget is finalized, any income left over after payment of priority debt and necessary expenses, is allocated to the DMP. Usually the credit counselor will administer the DMP, and will deal direct with all the creditors. Money in the DMP is normally divided in an equitable way among the creditors. The credit counselor can often negotiate with the creditors to get interest charges reduced or frozen, and late payment and default fees canceled.
As the debtor has many options to consider, it is usually advisable to seek advice from a credit counseling organization. UK charities working in this field include the Citizens Advice Bureau (CAB), and the Consumer Credit Counseling Service (CCCS). There are also commercial businesses offering credit counseling, and these will charge some sort of fee for their services.
In the US there are also non-profit and commercial organizations offering credit counseling. Not all commercial firms are bad, but some are, and the FTC have received numerous complaints. It is wise to follow advice, such as the FTC's "Knee Deep In Debt" guideline, when choosing a credit counselor.
Normally the first action which should be taken by the credit counselor, is a review of the client's financial circumstances. As everyone will have different problems, the best solution will differ from client to client.
For example those who own their own residence will have options not available to those in rented homes. Consolidating unsecured, high interest debts into secured, lower interest debt is the right solution for some people, but they must always be made aware that this will put their home at risk if they are unable to make the repayments.
Those who are living in rented accommodation do not have that option, but many not have as much to lose from other options, such as the IVA alternative to bankruptcy, which is available in the UK.
After a full review of the client's financial situation, the counselor can normally be expected to make a recommendation of an appropriate solution for that client. Debt management plans (DMPs) are one option which could be recommended.
When the DMP is set up the client and counselor will work out a realistic monthly household budget for the client. Monthly income, and monthly outgoings must be reviewed and assessed. Necessary expenditure, such as food and electric power, must be separated from unnecessary, such as holidays and tobacco. Some debts may be identified as priority debts. These are usually debts where non-payment may have severe consequences. Examples are electric bill arrears, fines, taxes, mortgage arrears.
When the budget is finalized, any income left over after payment of priority debt and necessary expenses, is allocated to the DMP. Usually the credit counselor will administer the DMP, and will deal direct with all the creditors. Money in the DMP is normally divided in an equitable way among the creditors. The credit counselor can often negotiate with the creditors to get interest charges reduced or frozen, and late payment and default fees canceled.
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