Debt management plans are available from debt management organisations, and they are just one of the ways you could become debt free. If you can't afford your monthly payments to your debts, this could be the right approach for you.
Debt management plans are run in different ways by different organisations. The guide below takes you through one of the ways it could work.
- Firstly, you will need to speak to a professional debt adviser, who will be able to help you decide if a debt management plan is suitable for you. They will ask you about your total income, your expenditure, how much money you owe and who you owe that money to - among other things.
- Assuming you wish to go ahead, your debt adviser will work out an affordable plan for repayments to your creditors.
- Your debt management company will contact your creditors and ask them to accept lower monthly repayments that really reflect what you can afford. Creditors don't have to accept any changes to your original repayment plans, but if they think they are more likely to get their money back by allowing you to repay the debt at an affordable rate, then there's a good chance they will accept. (Note that repaying any debt more slowly can add to the overall cost, due to interest.)
- If negotiations are successful, you will begin paying just one affordable monthly sum to your debt management organisation. The agreed sum will be divided between your creditors according to how much you owe each of them (this is called a pro rata payment). If your circumstances change, and you can no longer afford to make the repayments, your debt management company can contact your lenders and request changes to your plan to suit this.
- If your income increases while you are on the debt management plan, you can inform your debt adviser and ask them to negotiate higher monthly repayments to your creditors - meaning you can repay your debt more quickly. (Note: you should only do this if you can definitely commit to paying more than you are already doing).
Finally, please note that debt management will show up on your credit report, potentially making further credit more expensive and / or harder to obtain for 6 years.
For more information on debt management and other finance issues such as loans and bank accounts, see my author area.
