A debt management plan is an informal debt solution. It involves making reduced monthly payments, based on what you can afford, over a longer period of time than originally agreed. It may also be possible to reduce or freeze interest and other charges, which can prevent the debt from growing and can enable you to repay the debt in the shortest possible time.
It`s possible for you to arrange a debt management plan on your own, but this involves negotiating with your lenders, which can be stressful and time-consuming. For this reason, some people prefer to arrange their plan through a professional debt management company, who can carry out negotiations and manage the debt management plan on their behalf.
Because you`ll be repaying your debt for longer, you`ll also pay interest for longer (unless your lenders have agreed a freeze), which could cost you more in the long run.
Also consider that because you`ll effectively be defaulting on your original arrangements, your credit rating will be affected. This will make borrowing money more difficult in the future - but this may be a worthwhile price to pay if you`re really struggling.
Your lenders will only accept a debt management plan if you can demonstrate that you can`t afford your existing repayment arrangements.
If you can afford your payments, not only would your lenders not accept the plan, but it simply wouldn`t be worthwhile due to the impact on your credit rating and the potential additional interest and charges.
Similarly, if you can`t see any way of repaying your debts in full within a reasonable period of time, a debt management plan may not be viable.
In either of these cases, you should discuss all your options with a debt adviser.
Even if you meet the typical criteria for a debt management plan, that doesn`t necessarily mean it`s the most appropriate debt solution for you. In some cases, another debt solution might be more suitable - so make sure you get advice from an expert before making any decisions.
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