Debt management - advantages and disadvantages

26 January2010

If you find that you can no longer afford your monthly debt repayments, deciding what to do about it can be difficult. There are a range of debt solutions on offer, designed to help people in various circumstances with varying levels of debt.

One solution for unmanageable debts is a debt management plan.

Debt management - how it works

On a debt management plan, you`ll negotiate with your unsecured creditors (or ask a debt management company to do it for you), asking them to let you repay your debts in smaller amounts over a longer period of time. Your new monthly repayments would be based on how much you can afford once all your essential costs (including bills, food, council tax, etc.) have been taken into account.

It may also be possible to negotiate a freeze or reduction in interest and other charges, to prevent your debts from growing.

What are the pros and cons?

Whether or not a debt management plan is right for you will depend on your individual circumstances, but there are a few advantages and disadvantages that you should consider before deciding whether it`s worth entering into a debt management plan.

Advantages

Reduces your monthly payments to a level you can afford, meaning you can afford both your debt repayments and your essential costs.
Repayment arrangements may, in some cases, be changed again if your circumstances change.
It`s often possible to freeze interest and other charges, to stop your debt from growing.

Disadvantages

Will affect your credit rating, potentially making it harder and/or more expensive to obtain further credit for six years.
Lenders are not obliged to accept any changes to the repayment arrangements currently in place.
You`ll be expected to pay as much as you can afford, leaving you with very little spare cash each month.

Remember: you should consider all your options before you decide which debt solution is right for you. All debt solutions have their advantages and disadvantages, and a debt adviser can help you decide what`s best for your circumstances.

If you`re thinking about a debt management plan and want to know more, click here or call 0800 195 2911 today.

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Tags: debt, debt management, advantages, disadvantages, pros, cons