Is debt management a good idea?

25 June2009

For many people who can no longer afford their debt repayments, a professional* debt management plan could be a good way forward. It is an informal arrangement with your lenders - a debt management organisation can ask them to accept reduced monthly payments, allowing you to repay your debts at a pace you can manage.

Is a debt management plan right for me?

Debt management has helped a lot of people, but whether it is the right choice for you will depend on several factors. For example...

Debt management might be suitable if:

  • You can no longer afford your debt repayments.

    Debt management can reduce your monthly outgoings so you can make sure that all your commitments are being met. This would help you repay your debts over a period of time that you can manage.
  • You are dealing with a number of different debts.

    If you owe money to various lenders, a debt management plan can allow you to make a single monthly payment to your debt management organisation, which will subsequently distribute this payment between your lenders.

    Your payments will be based on how much you can afford after all your other commitments have been taken care of, so you`ll know there`s enough money left for your other commitments.

Debt management might not be the right option if:

  • You don`t think you`ll ever be able to fully repay your debts.

    If your debts have simply grown so big that you won`t be able to repay them within a realistic period of time, a debt management plan is not suitable.

    In this case, a debt solution that reduces the amount you repay (such as bankruptcy or an IVA) may be suitable. However, neither of these is an `easy way out` - both carry severe consequences for your credit rating.
  • You can still afford your existing payments.

    Debt management is only an option if you cannot afford your debt repayments. Your lenders simply won`t accept a reduction in your payments unless you can`t afford your payments as they stand, and they can see it is the best way for them to get back the money they are owed.

    Besides, a debt management plan could have an impact on your credit rating, and could delay the day you become debt free, due to the smaller monthly payments. It could also mean you pay more overall, since you will be paying interest for longer. For these reasons, a debt management plan is unlikely to be worthwhile unless you are having real problems with your repayments.

Related resources:


* Debt management plans can also be arranged by the individual without the help of a debt management organisation, although this can require a fair amount of time and effort.

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