Get advice from a leading debt specialist

Does debt management give you a bad credit rating?

22 June2009

If you are struggling with unmanageable debt, then a debt management plan could help. By negotiating new repayment arrangements with your creditors, you could make your debts manageable, and set yourself on the way to becoming debt-free.

How debt management works

A debt management plan is an informal agreement between you and your creditors in which you will make reduced monthly payments towards your debts, based on what you can realistically afford. This may mean it will take longer to pay off your debts, but for many people, the reduced monthly payments are the most important factor.

Your debt management plan will involve negotiations with each of your creditors for lower monthly payments. It`s possible to negotiate these new terms on your own, but because of the time and effort involved in doing so, many people prefer to arrange their plan through a professional debt management company.

Another advantage of using a debt management company is that once your debt management plan begins, you may make only one monthly payment to your debt management company, which will distribute the agreed amounts among your lenders, instead of making several different payments to individual lenders yourself.

It may also be possible to negotiate a reduction or freeze in interest and other charges, which can stop your debt from growing.

However, be aware that creditors are not obliged to accept the terms of a debt management plan. Making lower monthly payments could also end up costing you more in the long run if your interest rate is not (sufficiently) reduced, although you will still be paying less each month.

How debt management affects your credit rating

Even though a debt management plan can make it easier for you to repay your debts, it will probably show up on your credit history and most creditors will see this as a negative mark on your credit rating. This is because you will have broken away from the original terms set out on your debts, and have therefore `defaulted`.

This could make it more difficult for you to obtain credit, and you may be offered higher interest rates on money you do borrow, until the entries on your credit history have expired (usually after six years).

If you`re considering a debt management plan, keep in mind that it`s an important financial commitment, and you should be sure that you will be able to keep up with your new repayment terms.

A professional debt adviser can offer guidance on debt management and a range of other debt solutions. Speak to one of our debt advisers today on 0800 195 2911.

Fill in our form for free expert debt advice

Tags: debt management, debt, bad credit, debt management bad credit, debt management bad credit rating, bad credit history, bad credit debt management, debt management for bad credit