By rearranging your debt repayments to fit around your other expenses, a debt management plan could turn your unmanageable debts into manageable ones.
A debt management plan is an informal arrangement in which you will repay your lenders in smaller amounts and over a longer period of time. It`s often an ideal debt solution for people who cannot afford their existing repayment arrangements, but who would be able to repay their debts in full over a longer period of time.
Your new monthly payments to your unsecured debts will be based on what you can afford once your other essential commitments (mortgage/rent, food, utility bills, etc.) have been covered. This should ensure that you can afford all your commitments, while keeping your lenders satisfied.
A debt management plan can be arranged either on your own, or with the assistance of a professional debt management company. Arranging a debt management plan can involve a lot of time-consuming negotiation, which a debt management company can carry out on your behalf.
Keep in mind that a longer repayment term might mean you`ll pay more overall, as you`ll be paying interest for longer too (although you - or your debt management organisation - may be able to negotiate a freeze in interest and other charges). Even though this can mean you end up paying more in total, many people will accept this if it means they can cope financially on a month-to-month basis.
A debt management plan is not a legally binding debt solution - not backed by law in any way, it is an `informal` arrangement.
On the plus side, this means that debt management plans can be flexible. If you experience a reduction in your income, you may be able to arrange a further reduction in your payments to reflect this. Similarly, if your income improves, you can arrange to pay more towards your debts, and therefore repay the debt more quickly.
However, your lenders are under no obligation to accept any changes to the way you`re repaying your debts. They do not have to accept the initial terms proposed in your debt management plan, and if they do, and it`s for a pre-defined period of time, they are not obliged to renew the terms at the end of that period (probably 6 or 12 months).
Having said that, if your circumstances haven`t changed significantly and you`ve been making the agreed payments during that period, your lenders will probably see no reason to insist on changes to the terms of your debt management plan.
Finally, please be aware that failing to keep up with your original repayment terms will show up on your credit report, whether or not you join a debt management plan. This will stay on your credit report for six years, and can make it harder and/or more expensive to obtain further credit.
For more information on debt management plans, click here or call our expert debt advisers on 0800 195 2911.
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