The Costs of Debt Management Plans
Entering into a debt management plan (DMP) can be a great solution to your unsecured debt troubles but you should be wary of any fees charged by DMP suppliers.
In this guide we’ll go through the kinds of charges you could expect and what you should do if you’re unhappy with the plan that’s been set up for you.
In this guide:
Debt Management Plan Supplier Charges
Almost all debt management companies will charge you for their services, either by taking a portion out of what you pay to your creditors each month or by charging a flat fee or sometimes both.
You should always make sure that you are fully informed regarding all of the fees that you have to pay as part of a debt management plan before you agree to set one up. If not, you could find that your DMP actually makes the debt you already have to pay back more expensive, instead of making it more manageable.
There are DMP providers that don’t charge anything for their services and if you do choose to go with them, the plan term will usually be shorter, as you won’t be sacrificing a portion of your monthly payment.
If you do choose do use the services of a DMP supplier that does charge a fee, you should never pay them more than 50% of your agreed monthly sum, and you should ensure that the costs are spread evenly throughout the term of the plan.
Were you fully informed about all of the relevant charges?
There is no legal limit on the amount that a DMP supplier can charge for their services. Rather, the Financial Conduct Authority (FCA) requires transparency and clarity from the supplier so that you can be absolutely clear on how much you’ll have to pay and what for.
This transparency applies to the following aspects of your charges:
- You must be informed of the portion of your monthly payments that will be paid to the DMP provider rather than to your creditors (and this portion must not exceed 50%)
- You must be informed of the nature of the charges, that is, whether you’ll be charged a one-off set-up fee, a deposit, a monthly management fee or all of the above,
- You must be made aware that the charges will result in you paying more than the value of your initial debt by the end of the plan.
How to Address Unwarranted Charges
If any of these conditions are not met, or if you feel like you have been in any way charged unfairly, then you should take issue with your debt management company.
You can do so in a variety of ways:
The first, and most straightforward, is to complain to the DMP provider directly. They are legally obliged to address your complaint with due care, attention and fairness.
Secondly, if contacting the company directly yields no positive results, you could take your complaint to the Financial Ombudsman Service.
Finally, if none of the above works to resolve your issues, then you should consider terminating the debt management plan altogether and, if needs be, starting a new one with a new company.
It is important to bear in mind though that if you do terminate the DMP, then you are unlikely to be refunded any fees that you have already paid. This is not always the case though so you should go over your initial contract carefully, with an advisor if needs be, in order to see if there are any costs that could be recovered.