A debt management plan is an informal debt solution which can help people with unmanageable debts. It involves making reduced payments towards your unsecured debts (based on what you can afford), either until the debt is paid off or until your circumstances improve enough for you to start making full payments again.
Some lenders may also agree to freeze or reduce interest and other charges on a debt management plan, which can stop your debt from getting any bigger.
There are two ways you can set up a debt management plan: on your own (by negotiating with your lenders yourself), or with the help of a professional debt management organisation. Some people prefer to use a debt management company because of the time and effort which can be involved in setting up a debt management plan - they`d rather ask a professional organisation to negotiate with their lenders on their behalf.
If you talk to your lenders yourself and negotiate lower payments, you`ll make those payments in much the same way as you did before - but they`ll be smaller, and they`ll go on for longer, since your debt will take longer to clear.
If you arrange your debt management plan through a debt management company, you will make single monthly payments to the company, who will distribute the agreed amounts to each of your lenders.
You will be expected to pay as much as you can afford towards your debts each month, once your other essential costs (mortgage/rent, bills, food costs, etc.) have been taken care of. If your income increases, you`ll be expected to start paying more towards your debts accordingly; similarly, if your income falls, your debt management representatives may be able to negotiate further reductions in your payments.
In most cases, your monthly payment will be split between your lenders on a pro rata basis (depending on how much money you owe to each lender).
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Tags: debt, debt management, payments, debt management payments
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