What are the Pros and Cons of a DMP?

DMPs provide an effective way for people who have numerous debts to become debt free in a set period of time. However, they should still be carefully considered before you enter into one. As with any debt repayment scheme, you will have to weigh up the pros and cons before making any arrangements in order to ensure that it is the right course of action for you.

Pros

Interest rates will generally be lower for a DMP than they are for the separate loans. This is because the agency handling your DMP will negotiate better interest rates to make repayments more manageable.

The debt agency will also try to negotiate the freezing of any late fees and extra charges that your creditors may otherwise impose, meaning the amount of debt will not rise.

Being on a DMP will provide you with the peace of mind of having a fixed timetable in which you will become free from debt. Whether it is spread over three or five years, if you continue with your payments then you will know that by the end of the programme you can make a fresh start.

Being on a DMP means that you will only be dealing with the debt agency, meaning you will be free from communication with all creditors and will not receive any more phone calls or letters from them.

Your monthly payments will generally be less on a DMP than if you were paying back all of the loans individually, allowing for a greater degree of financial freedom each month.

One of the best things about a DMP is the sheer convenience that it provides. Only having one regular monthly payment to make allows you to budget much more effectively.

Cons

In a DMP, creditors are under no obligations to freeze interest and stop making charges. Instead, it is the duty of the debt agency to negotiate with them and come to a suitable arrangement.

The DMP is not available for people who cannot afford to make their monthly payments. If you have too much debt and are simply unable to pay back a reasonable amount each month then a different solution will have to be sought.

If you decide to start a DMP and then discover that you cannot make your monthly repayments in the future, it could lead to serious problems such as bankruptcy.

A DMP is only available for certain types of debt, and does not include a number of loans including secured loans.

Although arranging to go on a DMP won’t damage your credit score, it will make it more difficult to acquire credit in the future.

The DMP is not a suitable option for long-term debt, and is mainly for those people who will be able to clear their debt in a short period of time.