Can debt management help me pay my bills?

19 June2009

When you`re struggling with debt, every last cost can be another thing to worry about. Rent/mortgage, household bills, petrol - things you may have never worried about before - can suddenly seem a lot more daunting than they used to.

However, a debt management plan can help to turn your unmanageable debts into manageable ones.

How does debt management work?

On a debt management plan, you (or your debt management representative) will make informal arrangements with your creditors, asking them to accept reduced monthly payments towards your debts. Lenders may be willing to accept these terms if they can see it is the best way for them to recover the money they have lent you.

It may also be possible to negotiate a freeze or reduction in interest and other charges, which can stop your debt from growing - although creditors aren`t obliged to agree to this.

You can arrange a debt management plan on your own, although this can take a lot of time and effort. For this reason, you may prefer to use a professional debt management company, who can negotiate with creditors on your behalf.

Does debt management help with my bills?

In general, a debt management plan does not help directly with your priority bills, unless they`re arrears (payments you should have made in the past, rather than ongoing bills) from a previous utility supplier.

At Think Money, however, we may be able to do more than that, and help you with any arrears to a priority creditor - utility companies, councils, landlords, mortgage providers, etc.

Our Financial Specialists focus on dealing with priority debts. Staying on top of your priority debts is essential, as failing to do so can have severe consequences, so they would count your monthly payments towards those arrears as part of your essential expenditure, not your disposable income (the part of your income that`s available to pay towards your unsecured debts once your essential costs of living have been met).

In other words, your arrears would be cleared more rapidly than your other debts - and your payments towards your other debts would increase as soon as those arrears have been cleared.

Finally, a debt management plan can also indirectly help you meet your bill payments. This is because a debt management plan reduces your monthly outgoings - your payments towards your unsecured debts will be based on what you can afford after taking into account your essential costs, including your bills.

What are the downsides of a debt management plan?

A debt management is a big financial commitment that involves you moving away from the original repayment terms set out when you first borrowed the money. This means you will essentially have `defaulted` on the debts - and this will be recorded on your credit history. This will be recorded for six years after the default occurs and could affect your ability to obtain credit in that time.

Plus, as it is an informal arrangement, your lenders are under no obligation to accept the terms of a debt management plan.

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Tags: debt, management, bills, afford, cant afford bills, cant afford to pay my bills

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