If your debt repayments have become unaffordable, a debt management plan could be your way out of trouble.
If you think debt management could help you, you can either speak with your lenders directly or contact a debt management company.
A debt management plan involves making reduced repayments towards your unsecured debts each month, based on how much you can afford (once all your other essential costs have been accounted for). Your unsecured lenders don`t have to agree to this, but they are likely to if you can demonstrate that your current repayments are unaffordable and that this is the best way of repaying the money you owe.
Your lenders may also agree to freeze or reduce interest and other charges on your debts (but again, they are not obliged to do so). This can stop your debts from growing, which means that every payment you make goes towards paying back what you owe, rather than interest. If they don`t agree to this, though, repaying a debt more slowly will cost more, as the interest will build up for longer.
Please note that repaying debts more slowly than you originally agreed can affect your credit rating - you won`t be sticking to the original repayment plan, so your lenders may register a default notice, which can make it harder and/or more expensive to borrow more money in the next six years.
You can arrange a debt management plan in two ways: on your own, or with the help of a debt management company.
To arrange a debt management plan on your own, you`ll need to put together a budget plan, showing your lenders how much you earn and what your outgoings cost you each month (and therefore how much you have left to put towards your unsecured debts). You`ll then need to negotiate with each lender as to how much you`ll pay each month.
In most cases, your monthly repayments will be calculated on a pro rata basis (in proportion with how much of your total debt you owe to each lender). But if one or more lenders ask for more than this each month, this would obviously mean there would be less available for your other lenders - and things can get quite tricky at this point.
That`s one reason why many people prefer the convenience of a debt management company. A debt management company will negotiate with lenders on your behalf, which can make things much easier for you. They`ll also have experience of setting up debt management plans, and may handle things like phonecalls, letters and payment distribution. There may be a charge for this - your debt management company may take a part of your available income to pay for their services.
For more information on debt management, click here or call our expert advisers on 0800 195 2911.
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Fees payable when continuing service is provided. Repaying debt over a longer period may increase the total amount to be repaid. Calls are recorded and are usually free from UK landlines. Mobile phone users may be charged and should check with their service provider.
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