Debt management plan: Difference between revisions
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{{Personal finance}} |
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'''Debt management plan''' ('''DMP''') is an agreement between a [[debtor]] and a [[creditor]] that addresses the terms of an outstanding [[debt]].<ref name=FTC>{{cite web|last1=FTC (Federal Trade Commission)|title=For People on Debt Management Plans: A Must-Do List|url=https://www.consumer.ftc.gov/articles/pdf-0045-debt-management-plans.pdf|website=FTC.GOV|publisher=Federal Trade Commission (United States Government)|access-date=30 December 2014|archive-date=20 September 2017|archive-url=https://web.archive.org/web/20170920103347/https://www.consumer.ftc.gov/articles/pdf-0045-debt-management-plans.pdf|url-status=dead}}</ref> This commonly refers to a personal finance process of individuals addressing high [[consumer debt]]. Debt management plans help reduce outstanding, [[unsecured debt]]s over time to help the debtor regain control of finances. The process can secure a lower overall [[interest rate]], longer repayment terms, or an overall reduction in the debt itself.<ref name="Ryan2011">{{cite book|author=Joan Ryan|title=Personal Financial Literacy|url=https://books.google.com/books?id=zdWrPiSGXY4C&pg=PA292|access-date=13 December 2011|date=14 January 2011|publisher=Cengage Learning|isbn=978-0-8400-5829-4|pages=292–}}</ref> |
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A '''debt management plan''' is a formal agreement between a debtor and creditor(s). Debt Management Plans help reduce outstanding, unsecured debts at a reduced level over a fixed period of time to help regain control of finances. |
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==Overview== |
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Debt Management Plans are individually tailored based on what can be realistically afforded on a monthly basis. To achieve an accurate figure, an income and expenditure test will establish what monies are coming into the household and what is paid out. Income and expenditure includes everything, such as rent/mortgage, secured loans, utility bills, and essential living expenses (food & car tax etc.). Once the income and expenditure is complete, the remaining amount is your disposable income which is then divided amongst creditors through a Debt Management company. This is done on a pro rata basis between creditors making payment equal based on the level of debt outstanding. |
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{{more|consumer debt}} |
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DMPs for consumers are often negotiated by a [[credit counseling]] agency on behalf of the debtor.<ref name=FTC /> Credit counseling agencies often address the debt by working with the debtor to set a budget based on their regular [[Personal income|income]] and [[Consumer spending|expenditures]] that will then include one regular bill payment that is allocated across the creditor(s). Agencies will negotiate on behalf of the debtor to lower payments and interest rates with creditors. Some of the agencies are non-profits that charge no or non-fee rates, while others can be for-profit and include high fees.<ref name=FTC /> The effect on the debtor's overall [[credit score]] will vary.<ref name=CreditScore>{{cite news|last1=Sandberg|first1=Erica|title=Will a Debt Management Plan Hurt Your Credit Score?|url=http://www.foxbusiness.com/personal-finance/2013/07/31/will-debt-management-plan-hurt-your-credit-score/|access-date=30 December 2014|work=Fox Business News|agency=Fox News|date=August 9, 2013}}</ref> In the United Kingdom, as well as DMPs, residents can also apply for an [[Individual voluntary arrangement]] (IVAs), which can give the debtor a discount on their debt.<ref name=UKDebt>{{cite news|last1=Evans|first1=Judith|title=UK debt management company Harrington Brooks to pay compensation|url=http://www.ft.com/cms/s/0/0a2643dc-86bb-11e4-8a51-00144feabdc0.html#axzz3NPXCyN7V|access-date=30 December 2014|work=FT.COM Financials|date=December 18, 2014}}</ref> |
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==Regulations== |
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An alternative to Debt Management Plans is an IVA (see below link). |
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===United States=== |
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In the United States, credit counseling agencies are loosely regulated by the [[Federal Trade Commission]] (FTC), the nation's [[consumer protection]] agency, which can [[Lawsuit|sue]] companies that have deceived consumers about the cost, nature, or benefits of their services.<ref name="FTC" /> Different states may regulate DMPs individually and [[State attorney general|attorneys general]] are empowered to protect state citizens from fraud.<ref name="NYBar">{{cite web |author=CIVIL COURT COMMITTEE CONSUMER AFFAIRS COMMITTEE ([[New York State Bar Association]]) |title=PROFITEERING FROM FINANCIAL DISTRESS: AN EXAMINATION OF THE DEBT SETTLEMENT INDUSTRY |url=http://www2.nycbar.org/pdf/report/uploads/DebtSettlementWhitePaperCivilCtConsumerAffairsReportFINAL5.11.12.pdf |access-date=30 December 2014 |date=May 2012}}</ref> |
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Debt Management Plans are run via FCA (Financial Conduct Authority) regulated control. |
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===United Kingdom=== |
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Creditors do not have to accept the offer put forward. Interest can still be charged despite the plan being in place. Consider an IVA as an alternative debt help plan |
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In the United Kingdom, the [[Financial Conduct Authority]] is responsible for the regulation of consumer credit and has established a Debt Management Plan Protocol. It can impose fines for improper conduct.<ref name=UKDebt /> |
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===European Union=== |
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Elsewhere in the European Union, regulation and non-regulation of credit counseling agencies and their approaches, including DMPs, are widely varied. In [[Sweden]], guidelines for credit counseling are loosely provided by the [[Swedish Confederation of Professional Employees]] (TCO) and creditors are encouraged to use them in lieu of the court system. In [[Ireland]], the [[Irish Congress of Trade Unions]] (ICTU) provides debt resolution information directly to debtors. In [[Latvia]], a debt advisory company called LAKRA works with employers to assist indebted employees.<ref name=Eurofound>{{cite web|last1=DuBois|first1=Hans|title=Household debt advisory services in the European Union|url=http://eurofound.europa.eu/sites/default/files/ef_files/pubdocs/2011/89/en/1/EF1189EN.pdf|publisher=[[European Foundation for the Improvement of Living and Working Conditions|EUROFOUND]]|access-date=30 December 2014|date=August 11, 2011}}</ref> |
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==See also== |
==See also== |
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* [[Debt consolidation]] |
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* [[Individual voluntary arrangement]] ([[United Kingdom|UK]]) |
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* [[ |
* [[Debt counseling]] |
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* [[Debtors Anonymous]] |
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* [[Debt-snowball method]] |
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* [[Bankruptcy]] |
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==References== |
==References== |
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{{Reflist}} |
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Insolvency Practitionerss can be found at R3 |
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www.r3.org.uk |
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www.fca.co.uk |
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{{Debt}} |
{{Debt}} |
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[[Category:Debt|Management plant]] |
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[[Category:Debt]] |
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[[Category:Personal finance]] |
[[Category:Personal finance]] |
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Latest revision as of 05:33, 5 June 2024
Debt management plan (DMP) is an agreement between a debtor and a creditor that addresses the terms of an outstanding debt.[1] This commonly refers to a personal finance process of individuals addressing high consumer debt. Debt management plans help reduce outstanding, unsecured debts over time to help the debtor regain control of finances. The process can secure a lower overall interest rate, longer repayment terms, or an overall reduction in the debt itself.[2]
Overview
[edit]DMPs for consumers are often negotiated by a credit counseling agency on behalf of the debtor.[1] Credit counseling agencies often address the debt by working with the debtor to set a budget based on their regular income and expenditures that will then include one regular bill payment that is allocated across the creditor(s). Agencies will negotiate on behalf of the debtor to lower payments and interest rates with creditors. Some of the agencies are non-profits that charge no or non-fee rates, while others can be for-profit and include high fees.[1] The effect on the debtor's overall credit score will vary.[3] In the United Kingdom, as well as DMPs, residents can also apply for an Individual voluntary arrangement (IVAs), which can give the debtor a discount on their debt.[4]
Regulations
[edit]United States
[edit]In the United States, credit counseling agencies are loosely regulated by the Federal Trade Commission (FTC), the nation's consumer protection agency, which can sue companies that have deceived consumers about the cost, nature, or benefits of their services.[1] Different states may regulate DMPs individually and attorneys general are empowered to protect state citizens from fraud.[5]
United Kingdom
[edit]In the United Kingdom, the Financial Conduct Authority is responsible for the regulation of consumer credit and has established a Debt Management Plan Protocol. It can impose fines for improper conduct.[4]
European Union
[edit]Elsewhere in the European Union, regulation and non-regulation of credit counseling agencies and their approaches, including DMPs, are widely varied. In Sweden, guidelines for credit counseling are loosely provided by the Swedish Confederation of Professional Employees (TCO) and creditors are encouraged to use them in lieu of the court system. In Ireland, the Irish Congress of Trade Unions (ICTU) provides debt resolution information directly to debtors. In Latvia, a debt advisory company called LAKRA works with employers to assist indebted employees.[6]
See also
[edit]References
[edit]- ^ a b c d FTC (Federal Trade Commission). "For People on Debt Management Plans: A Must-Do List" (PDF). FTC.GOV. Federal Trade Commission (United States Government). Archived from the original (PDF) on 20 September 2017. Retrieved 30 December 2014.
- ^ Joan Ryan (14 January 2011). Personal Financial Literacy. Cengage Learning. pp. 292–. ISBN 978-0-8400-5829-4. Retrieved 13 December 2011.
- ^ Sandberg, Erica (August 9, 2013). "Will a Debt Management Plan Hurt Your Credit Score?". Fox Business News. Fox News. Retrieved 30 December 2014.
- ^ a b Evans, Judith (December 18, 2014). "UK debt management company Harrington Brooks to pay compensation". FT.COM Financials. Retrieved 30 December 2014.
- ^ CIVIL COURT COMMITTEE CONSUMER AFFAIRS COMMITTEE (New York State Bar Association) (May 2012). "PROFITEERING FROM FINANCIAL DISTRESS: AN EXAMINATION OF THE DEBT SETTLEMENT INDUSTRY" (PDF). Retrieved 30 December 2014.
- ^ DuBois, Hans (August 11, 2011). "Household debt advisory services in the European Union" (PDF). EUROFOUND. Retrieved 30 December 2014.