Could a debt management plan help me?

4 November2010

One option for tackling unmanageable unsecured debt is a debt management plan - a new repayment arrangement with your lenders to make your debt repayments easier to handle.

What does debt management involve?

A typical debt management plan involves making smaller monthly repayments towards your unsecured debts until your circumstances improve (or until you`ve repaid the debts - whichever comes first).

You`ll have to pay as much as you can afford each month - basically whatever`s left of your monthly income after your other essential costs have been paid for.

This must be agreed with your lenders in advance: they don`t have to agree to anything, but it`s quite likely if there really is no other way of repaying those debts in full and debt management looks like the best way forward.

During a debt management plan, lenders will often agree to freeze or reduce interest and other charges on the debts, preventing them from growing and enabling you to repay more of what you owe in a shorter space of time. Again, they don`t have to do this, but it`s common.

Will it help me?

It all depends on your circumstances. Debt management plans are designed to help people who can`t afford their existing unsecured debt repayments, by reducing them to a manageable level. However, you must still be able to repay everything you owe within a reasonable period of time, so you will still need to be making a realistic contribution each month for a debt management plan to be viable.

If you don`t think that would apply to you, you`ll need to look at your other options - for example, an IVA (Individual Voluntary Arrangement) could help people who can`t afford to repay their unsecured debts in full, while bankruptcy could help people who can`t commit to regular payments. Bear in mind that there are significant downsides to either approach.

Are there any downsides to debt management?

Yes. Failing to make the repayments you originally agreed will be recorded on your credit record for six years, making borrowing more money more difficult in this time. Secondly, unless your lenders do agree to freeze interest, the longer repayment period could cost you more overall.

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