Beware different types of DMP

The subject of whether or not anybody should pay for a DMP is often debated. In this piece we're aiming to draw a different distinction which relates to the rise in availability of a new, different type of "debt management plan" that is causing concern amongst industry professionals, regulating bodies and the end user.

A traditional debt management plan works in a very clear-cut process. The client makes a single contribution into the DMP each week or month. The DMP practitioner then takes their cost (if there is a fee) and spreads the remaining to the creditors of that debtor. The Office of Fair Trading (OFT) regulations require that this dispersion of debtor funds occurs inside a period of five days of having obtained the cleared client instalment.

More and more prevalent are new kinds of "twists" upon this well-known and accepted repayment model.

One such process incorporates a combination of a DMP alongside work trying to "eliminate" some of the debts by using consumer credit legislation. The idea is that at least a small amount of the debts will disappear, with the remaining debt then repaid sooner in the more conventional way.

Debt reduction procedures are typically not guaranteed, don't work very often, and typically encourage large upfront fees that are not refundable if they don't work. This means that some money that could have been used to clear debts has really gone to the person providing the "debt elimination" service irrespective of the outcome they achieve.

A related "twist" involves the DMP provider distributing a lower payment than arranged to each creditor, although the debtor carries on paying the full monthly amount. The difference is "saved" under the presumption that creditors will accept lower repayments in the future, this could happen but on the other hand creditors may get frustrated that they're only receiving a piece of what the debtor can afford to repay. Annoyed creditors can end up relying on legal debt retrieval methods, circumstances that could have been prevented had a standard debt management plan been used.

Any model that results in a debtor having funds "saved" like this on their behalf may in fact put the interests of that client in significant danger. Debt management operators might not be using the secure individual and insured kinds of debtor accounts applied by insolvency practitioners. That means that if the company goes out of business for any reason the funds of the debtor may not be protected. In some situations industry gossip questions whether all of these providers even completely put aside this cash reserve safely. Some trustworthy reports suggest that this isn't always the case at all firms.

Anybody presented with a "DMP" which encompasses either of these models (or both of them) will likely have received some particularly tempting promises that this represents the quickest way to clear their debts.

It is advised that any person considering a debt management plan takes into consideration all the legal and financial implications, especially if you are presented any of these new "twists" on the conventional method. If something seems too good to be true use good judgement and analyse your choices as this will help you make a decision.

Debt Management Plan Forum allows public access to experienced professionals within the debt management industry. By sharing their knowledge and advice, the experts help visitors to "shine a light" on the occasionally opaque world of debt management plans in particular and debt solutions in general.

How to differentiate DMP providers

Individuals with unmanageable debt levels might choose a debt management plan to help deal with this issue. The debtor has the option to contact all their creditors directly or can use a professional intermediary from a debt management plan company to communicate with creditors on their behalf. DMP operators differ and one type might be more appropriate for you than another. It's important that you consider all your choices before committing to one operator.

A lot of publicity and promotion of debt management plan providers can be found on the internet, on TV or the radio or in the printed media. When it comes to offline marketing lots of this advertising is actually placed by a number of very sizeable DMP companies. Large commercial DMP providers may be seen to offer some advantages to clients. They often have creditor liaison teams that understand creditor requirements. They also tend to rely quite a bit on automated processes which, where managed properly, have the power to potentially quicken the transferral of information and payment between the parties concerned.

A possible disadvantage of a larger DMP provider is that there are a variety of departments that deal with each section of your debt management plan. Consequently you might not have a personal rapport with your provider and they might be less supportive of your individual needs. Smaller operators may give you consistency if you are always in contact with one individual, allowing you to build relationships.

In the finance industry there are two large "free-to-client" businesses specialising in DMPs. As a consequence of their size they may have problems with contact and client relationship issues. Unlike other operators, these "free-to-client" businesses are paid by creditors rather than the client. Consequently debtors can save the provider fee, potentially minimising the total time taken to repay their debt. Some individuals view this as an important advantage and will opt for these providers because of this.

Lots of medium-sized debt management plan companies are present in the market. These businesses may offer an advantage to their clients because fewer staff dealing less debt management plan cases can create an environment in which greater personalised service can be delivered. These providers also tend to encounter little staff rotation both inside and outside of their business. Provided that you select a DMP specialist of this size that devotes resources to professionally training and qualifying their employees you could find an improved and more personalised service can be obtained. It's definitely sensible to select only companies that have opted to join one of the debt management plan trade associations.

In the market there are also individual debt advisors specialising in debt management plans. Plenty of these people are mortgage brokers that have diversified the services they provide to incorporate DMPs. It's important to realise that the education and training needed to work as a mortgage broker isn't the same as the training to become a DMP practitioner. These mortgage brokers do not have any expert knowledge of DMPs unless they've undergone further training.

Be very cautious also of debt management plan "franchises". These are normally national brands that have sold regions to local operators. Due to the heightened number of layers in their advice and delivery structure they may require excessive fees to put together a DMP. In most cases these excessive debt management plan fees have no consequent benefit to the debtor whatsoever.

The debt management plan forum we operate offers an excellent insight into the different types of debt management plan operator. Experts are available from a panel of debt management plan companies to respond to any questions that you may have when researching what type of DMP provider will be a good fit for your needs. Lots of other resources are also accessible at our debt management plan forum which will be of value to anybody weighing up their debt solution options.