Put simply, if you have more than one debt that isn’t secured against property (as a mortgage is), and you’re finding it difficult to make your repayments, a debt management plan could be a suitable solution for your debt problems.
Debt management is simply an informal agreement between you and the companies you owe money to and it can be managed by a debt management company. They would speak to your lenders on your behalf and explain how much you can realistically afford to repay every month.
A debt management plan should help you to afford the essential things in life while repaying your unsecured debts at the same time. That’s because a debt management company – and hopefully your lenders – would take into account how much you need to keep back for things like your mortgage or rent when they’re calculating how much you should pay per month. For more on debt management, just click here.
When to get debt management help
If your unsecured debts become unaffordable – so much so that your repayments swallow up money you need for your essential bills – a debt management plan could be a good solution.
And it can be flexible – if your circumstances change, the debt management company can negotiate with your lenders on your behalf to try and keep your payments affordable.
You shouldn’t have to deal directly with your creditors anymore, as the debt management company would do this for you. If you find it hard to talk to your lenders, having a professional do it for you can be a big weight off your shoulders.
Some important things to consider
Entering a debt management plan and making smaller payments than you agreed when you borrowed the money does mean defaulting on your original credit agreements with your lenders. This would be recorded on your credit record for six years. This could make it more difficult to obtain credit in that time.
And if you arrange to repay your debts over a longer period (to lower your monthly payments), you’re likely to pay more interest overall – unless your lenders agree to freeze interest.
Also, debt management is only suitable if you’re able to keep making reasonable payments. If not, you may need to find another debt solution.
Finally, your lenders don’t have to agree to anything. Some will freeze interest and charges; some might not. Some will be prepared to receive lower payments; some might not be. For that reason, you might find it easier to arrange a debt management plan if you speak to a debt management company who could negotiate with your lenders on your behalf.