Debt Management for Self Employed

An informal arrangement between you and your creditors

Debt Management Plan (DMP) is an informal arrangement between you and your creditors that allows you to repay your debts, normally in full, at a rate that you can afford without relying on further borrowing. A DMP could be appropriate if your business debts are up to date but you are struggling with personal debts. We cannot recommend DMP for business debts as it is much more difficult to get these creditors to accept lower payments, freeze interest and charges and agree not to take action. An IVA is likely to be more appropriate for you if you have both business and personal debts which are not affordable.

If during your DMP you are able to offer creditors a lump sum to settle your debts, it is possible to agree discounted settlements.

More about suitability

Our review will include assessing your business as well as personal Income and Expenditure. Ideally your business will be able to trade on a cash positive basis and meet its obligations.

We will also review your personal income and expenditure to assess if you have any surplus funds after taking into account your reasonable household expenses. If you can afford your contractual payments to creditors, a DMP is unlikely to be appropriate.

Your reasonable household expenses include “priority payments” which includes rent, mortgage and utilities plus something towards any arrears. Our advisors will assess your situation and determine if a debt management plan is suitable for you.

A DMP is an informal solution and should ideally provide for you to clear your debt in less than 10 years. If the plan looks like it could take more than 10 years, a DMP may not be appropriate unless you feel your circumstances are likely to change which will enable you to clear your debt in a 10 year period.

There are other solutions including IVA’s, Debt Relief Orders, Bankruptcy and Dealing Direct with your Creditors which may be appropriate. If you live in Scotland, the solutions are different, please visit Scottish Debt Solutions.

How has debt management helped others?

Anwar had operated a small store in Wales for a number of years but the ups and downs of trading had meant that he had to turn to credit cards and a loan to fund his stock and provide working capital for his business.

Anwar’s comments:

I was very pleased with the service that you provided. I always felt that I was speaking to an old friend as opposed to a debt advisor. You were always very friendly. When I was able to settle all my debts you got all the settlements and saved me over £10,000. I was very pleased with the service that I received.

Debt Management Plans – The benefits and the risks

Doing the right thing is only possible if a clear picture is available of the short term and long term benefits and risks of a Debt Management Plan. A debt management plan needs to very quickly get your debts under control and relieve the stress of debt but there needs to be a longer term plan to clear your debt.

The Benefits

• A Debt Management Plan is designed to allow you to pay what you can realistically afford to your creditors each month. Generally creditors will agree to accept reduced payments and freeze or reduce interest charges.
• The major benefit that we find our clients appreciate is having us liase and deal with all creditors and their correspondence. This includes dealing with phone calls, letters and  creditor interaction.
• We expect creditors to either stop further action to collect your debt or not to take such action. Our team are attentive and will work hard to ensure creditors do accept your plan.

The Risks

• However, a DMP is an informal debt solution and creditors are not obliged to freeze interest and charges. Some creditors may agree to reduce interest charges rather than freeze them. Continued charges could result in it taking longer and costing you more to repay your debts.
• A DMP could have a negative impact on your credit file. Creditors can issue default notices which will remain on your credit file for 6 years. Your ability to obtain credit will be affected.
• You may from time to time receive an unwanted call from a creditor especially if they are using a debt recovery company. Politely tell them you are in a DMP and state our company name and your personal advisor. We will take care of the rest.
• We cannot guarantee that creditors will not take legal action or that they will stop collection activity. Such action could result in a judgment and could potentially lead to a charging order if you have a property.

What does the service cost?

Set up fee

We are a fee charging company. We charge fees to cover our administration costs during the duration of your plan. As the bulk of our work is done during the initial stages of your DMP, we charge an initial set up fee.

The cost of this set up fee is spread over the first 6 months so that your creditors receive payment from the first month. The set up fee is calculated at 3 times your monthly contributions and is subject to a maximum of £1000.

Monthly management fee

Once the set up fee has been collected, we will charge a monthly management fee from month 7. Our monthly management fee is 17.5% of your monthly contributions. If your monthly contribution is £99.99 or less, this is subject to a minimum of £25 per month. For monthly contributions of £100 or more, a minimum fee of £30 per month applies. All DMPs are subject to a maximum monthly fee of £100 per month.

More about Debt Management

• Tax Arrears Payment Plan
• The Process