Could a Debt Management Plan Solve Your Debt Problems?
The lure of easy credit over the boom years has left many UK citizens struggling with money worries. If you really can't make ends meet under the strain of debt repayments, a debt management plan could be a solution worth considering.
What is a Debt Management Plan?
In essence, when you set up a debt management plan you're tellling your creditors that you can't afford to stick to your agreed repayment schedule, but are willing to try to come to an arrangement with them to restructure your payments to a more manageable level. In nearly all cases of unsecured debt, a lender would rather receive something from you than lose all the money they lent you should you be forced into bankruptcy, or receive only a portion of it under an IVA.
How Do Management Plans Work?
To set up a plan, you need to work out how much money you have left each month after paying your living expenses (excluding debts). This is the sum of money you can then afford to pay to your various creditors, distributing it according to how much you owe. You then make an offer to the creditor, and if accepted, no further debt recovery action will be taken so long as you keep to your new agreement. If this all sounds daunting, there are debt management agencies who will take on the negotiations and payment distribution on your behalf. Some charitable organisations will do this for free, although in today's climate you may find there's a waiting list. Others will charge a fee for the service - whether or not you think this is worth paying depends on how stressful you'd find the negotiations with your creditors. In any case, be sure you know how much any charges are before signing up.
Other Debt Management Plan Advantages
As part of the process, you can often arrange to have interest charges halted or even reversed, which can make a big difference to your overall debt levels and the impact of your repayments on what you owe. Also, if your new repayment schedule is realistic and you stick to it, that will be the end of any further debt collection letters, phone calls, or even visits.
Disadvantges
The major disadvantge is that your credit rating will take a beating. Your existing credit agreements will be marked as defaults on your credit file, making it very difficult to get further credit in the future. This is probably no bad thing - once bitten twice shy! - and in any case, if you're considering a debt management plan then it's likely that your credit rating has already been severely damaged by late or missed payments.
Related Articles:
Site is for information only and does not constitute financial advice. E&OE.
