A debt management plan could be an ideal solution if you’re faced with debt repayments that you simply can’t afford. But as with any debt solution, it will only work well for you if it really is the right solution for your circumstances.
A debt management plan is an informal repayment arrangement that can make managing your debts much simpler.
It works by reducing the amount you pay towards your unsecured debts each month to an affordable level, helping ensure you have enough money left over for your other living costs.
Lenders often agree to freeze interest and charges during a debt management plan. This can prevent your debt from growing, reducing the overall amount to be paid, as well as the time needed to clear the debts (compared with the overall cost and time if they didn’t agree to this).
Note that if interest and charges aren’t frozen, repaying your debts more slowly means you’ll be paying interest for longer, and you may pay more overall as a result.
A debt management plan should normally continue until your circumstances recover (and you can once more afford your original payments), or until you’ve fully repaid the debts covered by the arrangement (whichever happens first).
If you arrange your plan through a professional debt management company, they’re likely to provide regular reviews of your circumstances to assess whether it’s still the right option for you.
How do I know if it’s right for me?
Your lenders are only likely to accept a debt management plan if you can’t afford your existing debt repayments, but you can still commit to regular monthly payments. Even then there are no guarantees, but your lenders are quite likely to accept if it’s clear there is no other suitable way for you to repay your debts.
Your lenders will also want to know you can repay your debts within a reasonable period of time – so if you don’t think you can, you may be better off considering some form of insolvency, such as an IVA (Individual Voluntary Arrangement) or bankruptcy.
Finally, remember that all debt solutions have a few drawbacks. In particular, a debt management plan will affect your credit rating, because you won’t be sticking to the original repayment agreement.