Who are Debt Management Plans Suitable For?
A debt management plan is a new repayment agreement between a borrower and their unsecured creditors. It involves re-arranging how outstanding debts will be repaid, if the borrower can’t afford to keep up with repayments as they stand. The new agreement could include the creditors accepting lower monthly repayments and/or freezing interest, although creditors are not obliged to accept any changes to the original repayment agreement. This idea is to allow the borrower to repay their debt at a slower, affordable rate. However, it is important to note that agreeing to repay debts over a longer period of time may increase the overall cost (due to interest). Plus, a debt management plan will show up on the borrower’s credit report for 6 years, which could affect the cost and/or availability of credit for this time. Like any debt solution, it’s important to consider the alternatives before entering a debt management plan. It might be the case that a different debt solution (such as a debt consolidation loan or an IVA (Individual Voluntary Arrangement) could be more appropriate.
When would debt management be suitable?
On the whole, debt management may be the most appropriate debt solution if:
- Your debt is less than around £15,000 – which is the minimum amount usually required to qualify for an IVA.
- Your disposable income is less than around £200 per month – which is the typical amount for monthly payments on an IVA.
- You have been unsuccessful in obtaining a debt consolidation loan or a remortgage (possibly due to the current economic climate).You can afford to repay your debts in less than 5 years – which is the duration of most IVAs.
When would debt management be unsuitable?
Debt management could be unsuitable if:
- You won’t be able to repay your debt within a reasonable amount of time.
- Your income isn’t fixed – this could be the case if you are self employed and/or earn commission-based pay.
How could you enter a debt management plan?
Debt management can be done on a ‘do it yourself’ basis. However, you will need to be prepared to put in the time and effort required to manage your debts and negotiate with your lenders (perhaps on more than one occasion). Or you could enter a debt management plan through a professional debt management organisation. This way, you will benefit from the knowledge and experience that the right organisation will have. The organisation should be used to negotiating with creditors, an may have already handled situations similar to yours. No matter which way you choose, lenders will only agree to the new repayment terms if you can’t afford to make the repayments on your current agreements. If you want any more information on debt management, you should seek debt advice from a professional debt adviser
Comments
Hotel Finder
