One solution to solve debt problems is a debt management plan. This informal debt solution can be ideal for people wanting to resolve their debt, without entering a formal debt solution.
What is a Debt Management Plan?
A Debt management plan is where a person in debt repays all the money they borrowed, but over a longer than originally agreed period.
It is an informal arrangement where the company will ask for interest and charges to be frozen though this is not guaranteed. The length of time your debt management solution last depends on whether the interest and charges are frozen. If the majority of interest and charges are frozen, then you will become debt free quicker.
You make one monthly payment to the company and they distribute it on a pro rata basis towards your debt. This means you no longer have to worry about paying each individual creditor. The company will deal with all your creditors on your behalf so you no longer have to speak to each of them. Because it is informal either party can stop the plan with a month’s notice.
Who Can Arrange A Free Debt Management Solution?
There are many companies that can arrange a debt management for you, however the most affordable route is via a free debt management company. Many companies will charge you a set up fee (usually your first two or three payments) then a percentage of your monthly payments (15% – 40%), in exchange for setting up your debt management plan. There are options for free debt management plans so you don’t have to pay the setup or monthly management fees.
Before entering any debt solution make sure you’re aware of the charges that the company will take before your creditors are paid. There are companies out there that will not charge you so do seek debt advice from a charity.
As with all debt solutions, a debt management solution will affect your credit rating which does mean getting credit in the future will be hard.
Quick Guide: Debt Management
What’s the Solution: A debt management plan is one monthly payment to one company and your payment is distributed on a pro rata basis to each creditor. The solution continues until all debt has been repaid. Interest and charges could be frozen but it isn’t guaranteed.
What are the benefits: The benefits of a debt management plan includes:
- Payments are manageable. You only pay what you can afford and your debt management company make the payment on your behalf.
- Dealing with creditors. Your debt management company will manage your creditors so you don’t have to.
- Interest and charges could be frozen.
What are the negatives:
- By failing to meet your contractual obligations, you will receive a default added to your credit file.
- If interest and charges are not frozen then the solution could get you into more debt, not less.
- You may have to change your bank account.
Top Debt Management Tips
- To be suitable for a debt management solution you should have two or more creditors and be able to afford at least one hundred pounds a month towards your debt. Though some companies will accept less, remember the more you contribute the quicker you will become debt free.
- For a free debt management plan you must have £5,000 or more unsecured debt
- If your debt management plan is going to take longer than 10 years to complete then seek debt help as there may be alternative solutions you could consider.