Does a DMP prevent me from taking out further debts?

A Debt Management Plan is an informal arrangement and is therefore not contractually binding on either the debtor (you) or your creditors. Therefore there is nothing within the terms of the arrangement which legally prevents you from taking out further credit whilst you are in the Debt Management Plan. However, is taking out further debts whilst in the Plan a sensible idea?

The whole idea of a Debt Management Plan is to help you clear your Non Priority debts in a structured way which is affordable within your monthly budget. Entering into such a Plan is a commitment to sorting out your current indebtedness which, for whatever reason, has become impossible at the repayment levels required by the original agreement with the lenders. Taking out further credit during the Plan makes the clearing of your debts, plus dealing with the repayments of your new debts much more difficult and will not help you out of your current situation. How will you cover the repayments required by the new debt? The new debt will almost certainly be very expensive in view of your credit record.

As part of the assistance we provide when establishing a Debt Management Plan, we review your whole financial position, looking at your monthly household income and understanding all of your essential living costs which have to be paid in order to keep the roof over your head and food on the table. It is only after taking these costs into account that we come to a figure that you could afford to pay towards your unsecured debts. This review of your finances is a very useful aid to budgeting, and should enable you to deal with all of your commitments without having to rely upon overdrafts or other credit.

We all know that life is never straightforward, and there will always be occasions when there is an unexpected bill that needs to be paid, but with the flexibility that a Debt Management Plan offers, these could be managed without incurring further debts.

Finally, the effectiveness of a Debt Management Plan relies heavily upon the co operation of the creditors, particularly with regard to the likelihood of freezing or reducing interest charges, and taking out further debts whilst in the Plan will almost certainly lead to a withdrawal of that co operation.

Call us on 08448 247 260 or ask us any Debt Management questions using the form below: