What is a debt management plan?
When you are looking into how to solve your debt problems, you hear the term ‘debt management plan’ and many people have absolutely no idea what one actually is, so here you will find out what exactly is a debt management plan?
A debt management plan is an informal arrangement so payments can be changed to meet your circumstances. What this means is that Debt Management providers come to an arrangement with your creditors to repay your debts, but at a rate which you can afford. They do this by looking at your income and expenditure and coming up with a realistic payment plan that is good for all parties – your creditors get paid in full and you can repay your debts without struggling for food or warmth. If your situation changes and you can afford to pay more (or less) you can change your payment amount quickly and easily. Alternatively if at any point you decide you no longer need to be on a debt plan you can cancel at any time, although you will still have any outstanding debt with your creditors. In many cases Debt Management providers can even have any charges and interest frozen, although there is no guarantee that the creditors will agree to this. A Debt Management plan is not a solution we administer in-house.
What are the debt management fees for?
Your monthly debt management fee will pay the daily administration of your plan, the assistance from an expert agent, setting up communication with your creditors, payment of postal fees and phone calls, requesting that interest and other charges be stopped and providing you with an annual review of your financial situation.
How do you set up a Debt Management Plan?
We will refer you out to a debt management company who will conduct a full financial review of your accounts and determine a monthly affordable payment. They will then communicate directly with your creditors on your behalf, and develop a repayment plan. Once the plan is in place, all you will need to do is make one monthly payment. We will always recommend you speak to The Money Advice Service for free & impartial money advice before requesting to be referred to a debt management company.
Can I pay off my debts early?
A debt management plan, unlike an IVA does allow you to pay off debt early. As a non-legally binding agreement, you will be allowed to use pay raises or other sources of income to make larger payments and relieve yourself of debt sooner.
- Your plan is flexible so payments can be changed to meet your circumstances.
- If you complete the plan, your unsecured debts will be cleared.
- Making one regular monthly payment allows you better control over your finances.
- Peace of mind – in many cases, you will no longer be contacted by your creditors or debt collectors.
- Creditors don’t have to agree to a debt management plan and may still contact you asking for immediate repayment.
- Mortgages and other ‘secured’ debts are not covered by a debt management plan.
- Obtaining credit in the future could be problematic since your credit rating will be affected for 6 years
- Your debts must be repaid in full – they will not be written off.
- Paying over time may mean the amount you pay is increased