There are many debt solutions designed to help people with unmanageable debts. One of the most common is a debt management plan: an informal arrangement with your unsecured lenders for lower monthly payments (based on how much you can afford to pay each month).
Some people automatically think of bankruptcy when it comes to clearing unmanageable debt, but debt management plans and other debt solutions have given borrowers a range of options. But are the alternatives always better than bankruptcy?
By reducing your monthly debt repayments to an affordable level, a debt management plan can make your debts manageable again. It`s an informal agreement, meaning it`s not legally binding, and it can offer a certain degree of flexibility if your circumstances change later on. On the other hand, it also means your lenders are not obliged to keep on accepting those lower payments until your debts have been repaid - although they`re likely to do so if they can see it`s the best way of clearing the debt.
As well as lower monthly payments, it`s often possible to negotiate a freeze or reduction in interest and other charges, preventing your debt from getting any bigger.
You can arrange a debt management plan by yourself, by negotiating directly with your lenders, if you feel confident about doing so, but some people prefer to use the services of a debt management company. A debt management company can negotiate with lenders on your behalf, and be there to help you for the duration of the plan.
Either way, failing to keep up with the repayments you`d originally agreed to will show up on your credit report, and this can add to the cost and/or difficulty of obtaining further credit during the six years it stays there.
This depends on your individual circumstances. Debt management plans and bankruptcy can both help people with unmanageable debts, but they are very different in other ways.
A debt management plan is for people who can`t afford their debt repayments, but could still afford to repay the debt in full if the monthly repayments were reduced. Bankruptcy, however, is for people who have no realistic means of repaying their debts in full.
You should also consider the other alternatives for unmanageable debt, such as an IVA (Individual Voluntary Arrangement), a DRO (Debt Relief Order) or a Trust Deed (for residents of Scotland only). A debt adviser can talk you through what`s involved to help you make the right decision.
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