Can I do a 'DIY' debt management plan?

25 July2011

You don't have to get professional help when arranging a debt management plan. If you're comfortable doing so, it's actually possible to arrange a new repayment plan with your lenders without any assistance.

A debt management plan isn't 'formal' or legally binding, like some debt solutions. It's an 'informal' agreement with your lenders for reduced payments towards your unsecured debts. You may be able to arrange this by getting in touch with your lenders directly.

However, not everyone finds this easy to do, and there are no guarantees your lenders will agree to anything, regardless of who talks to them. If you're uncertain about anything, a professional debt management company may be able to help you arrange your debt management plan - including talking to your lenders on your behalf.

Quick guide to debt management

A debt management plan is basically a new repayment plan designed to make unaffordable unsecured debt repayments affordable again. If your plan goes ahead, your repayments will be reduced to a level you can afford alongside your other essential living costs, including bills and secured debt payments.

Your lenders may also agree to freeze interest and charges - which would stop your debt from growing, meaning you could repay the debt sooner than you could if it was still growing.

In most cases, a debt management plan will come to an end once you are able to make full repayments again, or once you've repaid the debts in full.

How to arrange your own debt management plan

To begin with, you'll need to work out a budget, so you can see how much you can afford to pay towards your unsecured debts each month. Start by adding up your essential monthly outgoings - not including the cost of unsecured debts - and subtracting the total from your monthly earnings. You'll be expected to pay as much as you realistically can towards your debts each month.

The next step is working out how much of your available income to pay to each lender. This is normally calculated on a 'pro rata' basis - in proportion with how much of your total debt each lender is owed. So if you owe 60% of your overall unsecured debt to lender A, 30% to lender B and 10% to lender C, you'd offer to pay the same percentages of your available income to each of those lenders.

You'll then have to contact your lenders to tell them how much you can afford to pay. There's always the possibility that one or more of your lenders will reject this, in which case you may have to try to come to another arrangement. If you can't come to an acceptable agreement with one or more of your lenders, you may have to consider an alternative debt solution.

Getting help from a debt management company

As you may have gathered, arranging a debt management plan alone can be time-consuming and complicated. However, a debt management company could make the process easier by negotiating with your lenders on your behalf.

Some debt management companies also allow you to send your payments through them - so you'd make just one payment per month, and they'd send on the agreed amounts to each of your lenders.

However, some debt management companies charge a fee for the service. Although this wouldn't affect the size of your monthly payments in any way, it can mean your debts take longer to repay.

Then there are the downsides of a debt management plan in general, whether you arrange it on your own or with help - your reduced repayments will affect your credit rating, and unless interest and charges are frozen, you could pay more in the long run.

But if you're really struggling, the benefits of a new, affordable repayment plan might well outweigh the disadvantages.

Try our debt solution finder

Answer a few simple questions and find out which debt solutions could help you, based on your circumstances.

Your Situation

Your Details

Please remember, this is just an information tool. We would always recommend you speak to a debt advisor for the most appropriate way to resolve your debt problems.
We'll give you an on-screen recommendation and call you. One of our advisors will be in touch to answer any questions you may have about your results.
Your privacy is important to us. All correspondence is held in the strictest confidence and we will only request information required to find your debt solution.

Tags: debt, debts, debt management, debt management plan, debt management plans, secured debt, unsecured debt, lenders, credit, credit rating, interest rate, interest rates

Fees payable when continuing service is provided. Repaying debt over a longer period may increase the total amount to be repaid. Calls are recorded and are usually free from UK landlines. Mobile phone users may be charged and should check with their service provider. Cards are provided by third parties and are subject to eligibility, status and terms and conditions. Applicants must be UK residents aged 18 or over.

All About Money Limited © 2013. All rights reserved. 42 Boston Rd, Sleaford, Lincolnshire NG34 7ER.