By myfinances.co.uk staff
Despite being intended as a short-term repayment contract between an individual and thei unsecured creditors, more than a quarter (26%) of Debt Management Plans (DMPs) last for at least ten years, according to new research.
Peter Sargent, president of insolvency service R3, said his company’s findings indicate that some people are becoming “slaves to their debts” by entering inappropriately lengthy plans.
Furthermore, he said R3’s figures show 30% of people who are either bankrupt or in an Individual Voluntary Agreement at present used to be signed up to one of the plans, which suggests that in some cases, DMPs just “prolong distress” when another course of action would have been more appropriate from the start.
However, R3’s survey found that 35% of those using a DMP said the other options for dealing with their debt were not discussed when they took out their plan. Another 22 per cent of those signed up to a DMP were not asked for proof of income or expenditure before it began.
“If this information is not verified at the start the monthly payments may be set too high – dooming the plan from the outset,” Mr Sargent said.
According to Credit Action, the average household debt excluding mortgages stood at £8,939 in January.
Save money on your gas and electricity bills
Compare all energy prices with uSwitch and save up to £400.
Twitter: My Finances
Join the conversation at #news_myfinances