Debt management plans explained

18 May2021

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Let's start with a few questions. Do you have a number of unsecured debts - for instance, credit cards, overdrafts and personal loans? Can you no longer afford your agreed monthly payments - but still commit to paying back smaller monthly amounts and repay everything you owe in time?

If your answer is 'yes' to these questions, a debt management plan could be an ideal option. If a debt management plan is agreed with your lenders, it will reduce your monthly payments to an affordable level, remove much / all of the stress of dealing with lenders' telephone calls and letters and give you a realistic route out of your unsecured debt problems.

In this article we'll explain exactly how debt management plans work, so you can be clearer about whether or not it could work for you.

Fill in our quick form to find out if debt management could be an option for you.

What is a debt management plan?

A debt management plan is an informal agreement that could be made with your unsecured lenders. It could only be an option if you can no longer afford to make your monthly repayments as they currently stand - and therefore you need to find a way of realistically making your payments again.

If you decide that a debt management plan is the best approach for you, your lenders would be asked to accept lower monthly payments - based on whatever you can afford to repay after you've paid all your essential monthly outgoings (rent/mortgage, food, bills, etc.).

Although making smaller monthly payments means it'll take you longer to repay everything you owe to your lenders, they're likely to be willing to accept a debt management plan if it's the most realistic way of getting all their money back.

If they do accept a new repayment plan, your lenders may decide to freeze interest on your debts too - so more of each monthly payment you make will go to repaying the debt itself, rather than the interest. Having said that, repaying your debts over a longer period could end up costing you more overall if interest isn't frozen.

This page answers more questions about debt management plans.

How could I set up a debt management plan?

There are two ways you could set a debt management plan: on your own, or with the help of debt management professionals.

If you decide to set up a debt management plan by yourself, you'll have the sole responsibility of negotiating with your lenders, whereas a professional company will contact your unsecured lenders on your behalf, deal with any related telephone calls and letters, distribute money to them - and potentially charge for the service.

What are the downsides of a debt management plan?

Breaking your original agreements and making smaller monthly payments will affect your credit rating for up to six years - which means it's likely you'll have difficulty getting any further credit during this time.

On the plus side, you'll know that you're repaying your debts at a pace you can manage, which could lift a big financial pressure off you.

It's entirely up to you which approach you decide to take. If you decide to 'go professional', we could help you set a debt management plan up today.

Image iStockPhotos / Gordon Bell

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Tags: debt, debt management plans, debt management, unsecured debts, overdrafts, debt help, debt advice

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