Debt Management Plans

In many cases a Debt Management Plan is the most appropriate solution to a persons debt problems. However if you have debts of more than £15,000 then an Individual Voluntary Arrangement may be more suitable.

What is Debt Management?

Debt management is an “informal arrangement” made between yourself and your creditors to reduce your debt repayments down to what you can reasonably afford. A Debt Management Plan can be arranged by the Citizens Advice Bureau or most often through a commercial Debt Management Company. The Debt Management Company will negotiate individually with each of your creditors and attempt to get them to agree to lower the amount of your monthly payments and to freeze interest on the debt. In return the Debt Management Company will charge a monthly fee along with an initial set up fee.

Advantages of Debt Management Plans

Debt Management Programmes offer a number of benefits to a person with financial problems. Under debt management your debts will be consolidated into one single monthly payment. This payment will be made to the Debt Management Company who will distribute it between your creditors. Having the Debt Management Company dealing with the creditors on your behalf will provide you with the benefit of their experience and remove pressure from yourself. If the plan is successful you can expect all further interest on the debts to be stopped. Debt Management Plans are particularly useful for people whose debt problems are only temporary for example to cover a short period of unemployment.

Disadvantages and Problems with Debt Management Plans

If you are considering a Debt Management Plan then there are some potential drawbacks that you should be aware of. Most Debt Management Companies will charge set up and administration fees. These fees are added to the amount you already owe, increasing the debt and the length of time it takes to repay it. It is often the case that for a Debt Management Company to help you will need to have a regular income and some companies will only deal with certain types of debt. Additionally as the agreement is informal it gives you no legal guarantee that interest payments on the debt will be stopped. Before entering into any plan you need to be sure that the arrangement can be cancelled should your circumstances change or if become dissatisfied with the service provided.