There are a number of solutions to consider when it comes to tackling unmanageable debt. One of the more common options is a debt management plan - an informal arrangement with your lenders for reduced unsecured debt repayments.
Of course, there are pros and cons to a debt management plan, as with any debt solution. You should make sure you`re clear on these before you make a decision on whether it`s right for you.
A debt management plan can enable you to repay your unsecured debts in the shortest possible time, but at a pace you can manage.
Your repayments will be based on what you can afford alongside your other essential costs (things like bills, groceries, travel expenses, etc.). So for example, if you earn £1,000 a month but your essential outgoings come to £760, you`ll be expected to pay the difference (around £240 a month) towards your debt management plan. (Note that debt management would only be an option if that £240 wasn`t enough to cover the monthly unsecured debt payments you originally agreed to make.)
As long as you and your lenders are satisfied with the way it`s working out, this will continue until your circumstances improve and you can return to your original agreements, or until your debts have been repaid in full.
As well as reducing the amount you pay each month, your lenders may also agree to freeze or reduce interest and other charges on your debts. This will stop your debt from growing and enable you to pay everything back sooner than you could if your debt was still accumulating interest. If they don`t agree to this, remember that repaying a debt more slowly (and therefore paying interest for longer) will cost you more in the long run. And please note that not sticking to your original repayment agreements will affect your credit rating.
Your lenders aren`t obliged to agree to a debt management plan. But if you really can`t afford your debt repayments and there doesn`t seem to be any other realistic option for paying back your debts, a debt management plan could well be the best way forward for you and your lenders.
You will only be able to get onto a debt management plan if you need it. You will have to demonstrate to your lenders that your debt repayments have become unaffordable, but that you can continue to make regular (smaller) payments.
And remember that even if you are eligible for a debt management plan, it might not necessarily be the best option for you. There are various options available, and you should talk to an expert debt adviser, who can help you decide on the approach which is best for your circumstances.
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