A guide to Debt Relief Orders, Debt Management Plans and car finance

If you're struggling with debt and you've found yourself wondering ‘What is a Debt Management Plan?’, you’ve come to the right place. Whether you have bad credit and you're looking for car finance, or you're currently in debt and want to find out more, CarFinance 247 is here to help. 

At Car Finance 247, we believe that every driver should be able to own a car, regardless of their current financial situation. Because of this, we've created this quick guide to help you understand what a Debt Management Plan is and whether it's the right solution for your needs. We'll also briefly go through Debt Relief Orders, although there are several other debt solutions available to you if you'd prefer something slightly different.

These debt management programs may not be right for you, so it's important to assess your situation in full before committing. If you're struggling with debt, it's best to seek independent debt advice from a professional in the financial industry.

If you'd like to see how much you could pay for your finance deal, please click the 'Get my quote' button. However, if you'd like to speak to a member of our team first, please get in touch on 0333 247 1247.

What is a Debt Management Plan?

A Debt Management Plan is a common debt solution for people based within the UK. A DMP is an agreement between yourself and your creditors to pay off all your debts. There are two main reasons why you may want to set up a Debt Management Plan:

• If you’re unable to keep up with your monthly repayments
• If you have debt problems but believe you will be able to make your repayments shortly. 

You have two options when setting up a debt management plan:

• Set up your plan yourself - Setting up your own DMP may be more complicated than going through debt management companies, but it could also be cheaper in the long run.
• Apply with a licensed debt management company - If you arrange your debt management plan with a licensed company, you will pay one monthly payment to them, which will then be distributed between your creditors.

It's important to note that DMPs can only be set up for unsecured debt, rather than secured debt. 

Another common debt management program is an IVA (Individual Voluntary Agreement). Whilst IVAs may look similar to DMPS at first, they're classed as a legal form of insolvency and are legally binding, whereas Debt Management Plans are not. 

Whichever option you choose, we highly recommend speaking to a financial advisor first, so you can ensure you’re making the right decision for your situation.

How does a Debt Management Plan work?

If you’re still able to pay some money towards your debt but you can’t afford your full monthly repayments, then a Debt Management Plan could help. They’re intended to help you pay your debts at an affordable rate, and in most cases, you should be able to work something out with your creditors. You’ll usually work with a debt management plan provider, paying them a regular monthly amount that will then be distributed among the people you owe.

A DMP is typically used for non-priority debts like overdrafts, personal loans, credit cards, store cards, payday loans, and money you’ve borrowed from friends. It can’t be used for high-priority debts such as court fines, council tax, utility bills, child support/maintenance, your mortgage/rent, or hire purchase agreements (if your car is classed as an essential).

For more advice on whether a DMP is right for your needs, please speak to a licensed financial professional.

 

How to set up a Debt Management Plan

In most cases, you’ll need to speak to a licensed debt management company to set up a DMP. However, free Debt Management Plans may be available from various debt advice organisations. You may want to consider shopping around to find the right company for your needs, as every organisation will be slightly different. Once you’ve made your choice, they will then work out what kind of monthly payment you can afford and negotiate with your creditors on your behalf.

You should keep in mind that your creditors don’t have to agree to the plan and, unless it’s stated in your agreement, they can still ask you to pay back the full debt later. There’s also no guarantee that your interest or charges will be frozen either. An IVA may be a better option if you’re concerned about these issues. With an IVA, interest and extra charges are frozen during the contract term, and your creditors are not allowed to keep chasing you for repayment.

Another thing to note is that your DMP can be cancelled if you fail to keep up with your new repayments. This means that you need to make sure that you have enough funds to pay your monthly payments before making a commitment.

What’s the difference between a debt relief order and a debt management plan?

If your debts are piling up, you have bad credit, or your circumstances have changed and you’ve fallen behind with your monthly payments, it may be time to act.

Debt Management Plans and Debt Relief Orders (DRO) are both debt management programs that can help you deal with your debt. However, deciding which one might work for you will depend on your personal circumstances and the type of debt you have.

The good news is that having a DMP or a DRO doesn’t automatically mean that you won’t be able to get car finance. At CarFinance 247, we have a vast panel of lenders that can consider finance deals for a wide variety of cases. It doesn't matter whether you have poor credit, you're on benefits or you've been refused car finance in the past - we may still be able to help!

To find out more about the sort of deals you may be eligible for, please click our 'Get my quote' button'. 

You can speak to a free debt advice service before you take your next steps, but if you’re looking to find out how debt relief orders work and how they could affect your car finance application, reading through the rest of our quick guide could help.

 

How does a Debt Relief Order work?

If you can’t afford to make any payments to your creditors, you could be eligible for a Debt Relief Order.

You must meet certain criteria to apply for a DRO: 

• You can’t have more than £20,000 of qualifying debt (see what this includes below)
• You can’t have any significant assets worth more than £1000 in savings, 
• You can’t have more than £50 spare each month after you’ve paid all your household bills
• You must have lived in England, Wales, or Northern Ireland for at least three years.
• You are not eligible for a DRO if you’re in the process of either being declared bankrupt, or are bankrupt already

You won’t be eligible for a DRO if you’re in the process of being declared bankrupt or are bankrupt already, have an IVA, or have had another DRO in the last six months.

A Debt Relief Order usually lasts for 12 months - during that time you’ll have a few restrictions:

• Permission from the court is required if you want to create, manage, or promote a company
• You can’t direct a company
• You’re not allowed to borrow more than £500 or apply for an overdraft without informing the lender or bank/building society.

A DRO could stay on your credit report for up to six years. However, if you’re concerned about bad credit, it can be revoked if your circumstances change and you’re able to pay your debts again.

If you’re looking for car finance within these six years, we may still be able to help. We work with a panel of lenders, which means we can look to find car finance options for people with a range of credit histories, including those who have had a DRO or DMP in the past.

To find out what your deal could look like, please click the ‘Get my quote’ button - when getting a quote, we will only conduct a soft search, so your credit report will not be affected.

 

What does a debt relief order cover?

A Debt Relief Order can be used to cover a range of different debts including personal loans, overdrafts, credit cards, rent, council tax, utility bills, store credit and money owed to HMRC.

However, you can’t use a DRO to cover student loans, social fund loans, confiscation orders, magistrate court fines, or child support and maintenance payments. 

 To find out whether the type of debt you have can be included in a Debt Relief Order, you may want to speak to a licensed financial advisor.

How to apply for a debt relief order

You can’t make a Debt Relief Order application on your own, so you’ll need to go through an appointed intermediary. It costs £90 and this payment must be paid in full before your application will be looked at.

Can you get car finance with bad credit?

Whilst there’s a common misconception that bad credit can stop you from taking out finance, this isn’t true. 

You may find it harder to get finance if you have a bad credit score or have been refused car finance in the past, but these factors aren’t always barriers. As we have a wide panel of lenders, we should still be able to find something suitable for you.

To find out what sort of deals you could be eligible for, please click the ‘Get my quote’ button. Alternatively, if you’d like to speak to a member of our team to discuss your options, please get in touch here.

Find the perfect deal with CarFinance 247

Now that you’ve read through our guide, we hope the question ‘What is a Debt Management Plan?’ has been answered correctly for you. 

If you have poor credit or a history of debt, you may have found it difficult to find a suitable car finance deal. However, regardless of your credit history or whether you’ve had a Debt Relief Order or been in a Debt Management Plan in the past, you may still be able to find the right loan for your needs when applying through CarFinance 247.

As a licensed finance broker, we work with a broad panel of lenders, meaning that we can look to find car finance options for people with a variety of different credit histories, including people with bad credit scores. There’s no guarantee that we’d be able to help as we’d have to look at your individual circumstances first, but you can still get a quote today to find out more. 

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