Debt Management is a method of dealing with debts once they start getting out of control. It is not something to be undertaken lightly, as it can severely harm your ability to get credit in the future, at least until your debts have been cleared. However, people with problem debt levels often have impaired credit in any case, so this may not be an issue.

The basic process of debt management is to renegotiate your repayments to your creditors, with the aim of lowering the amount you have to pay each month. Often, a creditor will be willing to negotiate a lower repayment amount rather than risk you defaulting on the debt completely.

One way of lowering your payments is to ask for the interest on your debt to be frozen, or even cancelled. Whether this tactic is successful or not depends on the policies of your creditor, but many are open to at least the possibility.

If they won’t freeze interest payments, another startegy is to ask if you can pay only the interest - i.e. only pay the interest charges on your debt and not reduce the overall amount owed. This is a less attractive option, as you’re not solving the debt problem, only reducing your payments to give you some breathing space while you rearrange your finances.

Debt negotiation companies

There is no reason why you can’t conduct the negotiations yourself, but many people prefer to pay a professional debt management company to handle things on their behalf - for most people struggling with debt, the prospect of trying to negotiate with their creditors is not an appealing one.

There is also the possibility that a professional’s experience and knowledge, plus a personal detachment from your debt, could bring better results than if you did it yourself.

Finally, as part of the management program, you’ll only have to make one single repayment to your management company, who will then distribute the funds as agreed under the renegotiated repayment schedules. This will at a stroke make your finances much simpler, and make you much less likely to miss a payment by mistake.

Is debt management a good idea?

The answer to this obviously depends on your particular situation. Entering into a program means that you are effectively breaking the terms of your credit agreements, and this will definitely count against your credit rating.

Secondly, you’re paying a company to do something that you could do yourself, and this could be money better used to reduce your debt.

However, a management program can definitely reduce your stress levels by helping you to get your finances back under control, and can often reduce your overall repayments and debt levels quite substantially.

Again, it’s not something to be taken on lightly, and most debt counsellers will try and explore all other options before recommending a program, but if your debt is spiralling out of hand and there doesn’t seem another way out, then management can be an effective strategy.

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