Will a debt management plan pay off all my debts?

5 April2021

Borrowers with unsecured debts - such as credit cards, personal loans and overdrafts - that they can no longer afford to repay every month will need to find a new, affordable approach as soon as possible.

One potential option is a debt management plan: a new repayment plan that could be agreed with your unsecured lenders.

However, before entering any debt solution, it's important to look at whether it's really suitable for you - which means asking some important questions and 'weighing up' all the pros & cons.

Will a debt management plan pay off all your debts? Keep reading to find out.

What is a debt management plan?

A debt management plan is an informal repayment plan that could be agreed with your unsecured lenders. It's an approach designed to give people who can no longer afford their agreed monthly payments a realistic, affordable way of getting on top of the problem.

If you decide that a debt management plan is the best approach for you, your unsecured lenders would be asked to accept smaller monthly payments, based on what you can afford to repay every month once you've taken care of your basic living costs (rent/mortgage, food, bills, etc.).

Your lenders are under no obligation to agree to a debt management plan - but they're likely to if they think it's the best way of getting back the total amount you owe them.

You can find more information about debt management plans on this page.

Will a debt management plan pay off all my debts?

A debt management plan is only suitable for unsecured debts you can no longer afford to repay every month as agreed.

Once you agree a debt management plan, you'll make your new, smaller payments for as long as it takes to repay your unsecured debts in full. However, if your circumstances change sufficiently for you to begin making your original payments once again, your debt management plan can end at that point.

It won't directly help you with your secured debts (like a mortgage), although debt management should help you keep up with your payments towards those debts, since your debt management payments will be calculated to leave you with enough for 'priority' expenses like these.

It's also important to consider that, as a debt management plan is an informal agreement, it offers some flexibility. For example, if you experience a fall in income, your lenders may agree to lower your payments further until your circumstances improve again.

Similarly, if your salary increases, e.g. you get a promotion at work, you may be expected to increase your monthly repayments.

Visit our FAQs page if you want more of your debt management questions answered.

How will a debt management plan affect me?

Making smaller monthly payments than originally agreed could end up being more expensive overall (as you'll be paying interest for longer), and will affect your credit rating for six years.

Having said that, a debt management plan could still be the most suitable approach to your debt problems. You can find out if you qualify for debt management here.

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Tags: debt management plan, debt management, unsecured debts, debt, credit cards, personal loans, overdrafts

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