A debt management plan is a new agreement between a borrower and their unsecured creditors: a re-arrangement of how outstanding debts will be repaid. This new agreement could involve the creditors accepting lower monthly repayments and / or freezing interest. This means that the borrower will pay their debt back more slowly, and at an affordable rate. However, repaying debts over a longer period of time may increase the overall cost (due to interest).
And creditors are not obliged to agree to any new terms – or to stick to them. The plan will stay on the borrower’s credit rating for 6 years, which means that during this time, further credit may be more expensive and/or harder to obtain. As with any debt solution, it’s important to consider the alternatives before entering a debt management plan. It may be that a different debt solution (such as a debt consolidation loan or IVA (Individual Voluntary Arrangement)) might be more appropriate.
When would debt management be suitable?
In most cases – but not all – it might be the most appropriate debt solution if:
1. Your debt is less than around £15,000 (the minimum amount usually needed to qualify for an IVA).
2. Your disposable income is less than around £200 (the typical minimum amount for monthly payments on an IVA).
3. You have been unable to obtain a debt consolidation loan or remortgage (possibly due to the current economic climate).
4. You can definitely afford to repay your debts in less than 5 years (the duration of most IVAs).
When would debt management be unsuitable?
Debt management might be unsuitable if:
1. You won’t be able to repay your debts within a reasonable time frame.
2. Your income isn’t fixed. This may be the case if you are self employed, or earn commission-based pay.
How would you enter a debt management plan?
Debt management is possible on a ‘do it yourself’ basis. However, you will need to be prepared to put in the time and effort that is required to manage your debts and negotiate with your lenders (possibly on multiple occasions). Or you could approach a professional organization. If you choose to do it this way, you will benefit from the knowledge and experience that the right organization will possess. The organization should be used to dealing with creditors and may already have handled many similar cases to yours. So they should know how to handle your situation in the best way. Either way, lenders will only accept new repayment terms if you can’t afford to make the repayments on your current agreements.
By: Owen T Smith
About the Author:
And creditors are not obliged to agree to any new terms – or to stick to them. The plan will stay on the borrower’s credit rating for 6 years, which means that during this time, further credit may be more expensive and/or harder to obtain. As with any debt solution, it’s important to consider the alternatives before entering a debt management plan. It may be that a different debt solution (such as a debt consolidation loan or IVA (Individual Voluntary Arrangement)) might be more appropriate.
When would debt management be suitable?
In most cases – but not all – it might be the most appropriate debt solution if:
1. Your debt is less than around £15,000 (the minimum amount usually needed to qualify for an IVA).
2. Your disposable income is less than around £200 (the typical minimum amount for monthly payments on an IVA).
3. You have been unable to obtain a debt consolidation loan or remortgage (possibly due to the current economic climate).
4. You can definitely afford to repay your debts in less than 5 years (the duration of most IVAs).
When would debt management be unsuitable?
Debt management might be unsuitable if:
1. You won’t be able to repay your debts within a reasonable time frame.
2. Your income isn’t fixed. This may be the case if you are self employed, or earn commission-based pay.
How would you enter a debt management plan?
Debt management is possible on a ‘do it yourself’ basis. However, you will need to be prepared to put in the time and effort that is required to manage your debts and negotiate with your lenders (possibly on multiple occasions). Or you could approach a professional organization. If you choose to do it this way, you will benefit from the knowledge and experience that the right organization will possess. The organization should be used to dealing with creditors and may already have handled many similar cases to yours. So they should know how to handle your situation in the best way. Either way, lenders will only accept new repayment terms if you can’t afford to make the repayments on your current agreements.
By: Owen T Smith
About the Author:
If you would like any further information on debt management plans, you should seek debt advice from a professional debt adviser, who will advise you on whether a plan is right for you.
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