How much debt do I need to qualify for debt management?

24 April2009

If your debts have become unmanageable to the point where you simply can`t afford your repayments, then a debt management plan could help you to get back on track.

In short, a debt management plan is an informal agreement with your creditors, which tries to negotiate smaller monthly payments to each of your creditors, based on how much you can afford.

It`s possible to arrange a debt management plan on your own, but since this is a time-consuming and potentially complicated process, many people prefer to use a professional debt management company, which can negotiate the terms of the debt management plan on your behalf.

Does my level of debt qualify for a debt management plan?

Some people who are considering a debt management plan worry that they have either too much or too little debt to qualify for a debt management plan.

In reality, your level of debt does not have as much to do with a debt management plan as your ability to repay your debts. A debt management plan is designed to help people who can no longer afford their debt repayments, by reducing the amount they pay to their creditors each month.

For example, let`s assume that after your essential expenses have been covered, you have 300 left each month. Meanwhile, you are expected to pay a total of 450 to your creditors, which you cannot afford based on your income. Lenders aren`t obliged to agree to anything, but a debt management plan might be able to negotiate a reduction in your total payments to 300, to be split amongst your creditors on a pro rata basis (according to how much each is owed).

Of course, you will still have to repay your debts in full, and reducing your monthly payments will mean you are repaying your debts for longer. However, a professional debt management company may be able to negotiate with your creditors for a reduction (or freeze) in interest and other charges, which can prevent your debts from growing.

Should I consider any other debt solutions?

You should always discuss your debt problems with a professional debt adviser before making any decisions, and they will help you to establish the best debt solution for your circumstances. A debt management plan can help many people - but for example, if it seems unlikely that you will ever be able to repay your debts in full, then another debt solution such as an IVA (Individual Voluntary Arrangement) may be more appropriate.

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