Debt Management Plans

Debt Management Plans

What is a debt management plan?

A debt management plan can help you get back on your financial feet if you’re finding it difficult to meet the demands of your monthly repayments for things like store cards, personal loans or credit cards. It is often the answer for people who don’t need to consider the more extreme steps of an IVA or even bankruptcy, but for whom some guidance and planning would be beneficial.

A debt management plan is a personal solution drawn up by a debt management company to help manage your debts in a more affordable way. Essentially they negotiate lower monthly payments with your creditors on your behalf.

Advisors will initially analyse your income and expenditure to work out a debt repayment plan. They’ll then use this as a tool to reach an agreement with your creditors and negotiate a new, lower, monthly repayment schedule.

Each month you pay the debt management company who in turn pay your creditors. Not only are you repaying less each month, but it will be easier to manage your finances as you are only paying one company instead of several different creditors. When discussing your situation with a debt management advisor it’s important to be honest about all of your debts and your level of income in order for them to find the best resolution for you.

Advantages of a debt management plan

• Peace of mind that you’re paying your debts.
• A one-stop shop, as you only pay the debt management company and no longer need to juggle multiple creditors.
• Lesr personal contact with your creditors, it’s mostly done via the third-party debt management company.
• A debt management company is more likely to get your interest levels frozen and charges reduced.
• No further interest or fees from a consolidation loan.

Disadvantages of a debt management plan

• Your credit rating could be negatively affected in the longer-term.
• Paying back a lower amount over a longer period could result in an increase in the total you actually pay, if interest rates aren’t frozen or lowered.
• You’ll still need to pay your non-debt related bills such as rent, utility bills etc. A debt management company are usually only responsible for unsecured debts such as credit cards, overdrafts, store cards and loans.