Debt management plans - what are they?
There are many ways you could clear your debts; debt management is just one of them.
The question is, though, what are debt management plans… and how do they work?
A debt management plan is an informal agreement between you and your unsecured creditors. It involves a change in the way you repay your unsecured debt (a reduction in the amount you are required to pay each month), and can help you get back on track with your finances if you can’t keep up with your payments.
Click here to read more about debt management in the UK.
Here’s a really quick guide to how a professional debt management plan could work:
- First of all, you’ll need to speak to a professional debt adviser, who will ask you various questions to figure out whether a debt management plan is the right solution to your debts.
- If they believe it is, your debt adviser will help you draw up a realistic plan for repaying your debts.
- Once they’ve worked out how much you can actually afford to pay towards your debts each month, your debt adviser will try to negotiate a new repayment plan, involving lower monthly payments, with your creditors.
- Your creditors may agree to the plan, providing they can see it’s the best way for them to get their money back - by allowing you to repay it at an affordable rate.
- If the negotiations are a success, you’ll begin making one affordable monthly payment to your debt management organisation. This money will be shared amongst your creditors according to how much you owe each of them.
Please note: because debt management is an informal financial agreement, both you and your unsecured creditors have the right to change your minds. Plus, repaying your debts more slowly can damage your credit rating and end up costing you more.
Tags: debt management