Debt management plan is a solution used to reduce your monthly repayments on all of your unsecured debt. Debt management is a formal agreement between creditors and yourself. Pay your debts with one tailored monthly payment and let us handle all your creditors.
Here is an example of how debt management plan could make your debts affordable:
|Currently monthly repayment||£179|
|Credit card A||£2,500|
|Credit card B||£1,000|
|Store card A||£1,000|
|Store card B||£500|
After a debt management plan
|New monthly repayment||£73|
What is a debt management plan?
Everyone owes money and pay taxes, but sometimes you may find out that you are swamped with debts and can't see a way of paying them all. Debt management plan is one of the keys which help to control the personal expenditures. In other words, debt management is appropriate for people that are struggling to pay their outstanding debts and pay out for living expenses and other spending.
Moreover, debt management plan is an informal agreement between you and your creditors. Before making this agreement every person should have basic arguments to the creditors (it means that you must bring the reason why and how long you can't afford to pay the current debts).
The main goal of debt management plan is to reduce outstanding unsecured debts at a reduced level over a fixed period of time to help you regain control of your finances. If you have enough experience in finance and understand the cash flows of money you can set up the DMP for yourself. In other cases, there are many companies which specialized in preparing and consulting about DMP. By the way, these companies help to negotiate with creditors and make it easy for you to get out of trouble and stabilize financial situation. However, some companies will charge you a fee for setting debt management plan, while others provide free services.
How does it work?
After entering in DMP every person could reduce monthly payments to the creditors at a safe level. Of course the current lower payments to the creditors is the best way for person to get out of trouble. On the other hand, it means that person will be forced to pay the current delayed share of payment in the future.
After DMP decision every creditor knows that it will be benefit for them with higher interest amount. Although, it isn't easy for person to force the creditor sign for the agreement and cut/reduce the monthly payments on the requested level. The more important thing after made agreement with creditors is the personal credit rating which gets worse after reduced payments to the creditors. So everyone should accept that credit rating will have already been affected and the aim is to focus on the outstanding debts you've got already and get something in place to make it more manageable for you and to stop you struggling with them.
After the agreement with creditors every person should keep up with the debt management plan and make monthly payments to the debt management company, who will distribute the monthly payments between creditors.
Advantages of debt management plan
- Freeze or reduce the payment of interest helps to stabilize personal finances;
- Reduce monthly payment;
- Peace for while. It means that creditors know your debt situation and don't bother you with phone calls, emails or will not start actions against you (such as County Court Judgments).
Disadvantages of debt management plan
- Creditors can break the agreement any time;
- Worsening personal credit rating (it will be more difficult to get a debt in the future);
- Highly period payments after the end of reduced monthly payments or interest rates (in total you will pay more);
What you should not forget?
Before setting up a debt management plan every person should calculate monthly incomes, expenditures and be ready to negotiate with creditors. Although, you have to plan how to cover debts in the nearest future. One of the main points to reduce the expenditures is carefully look over them and find the way how to cut the costs. Maybe you should shop less or think about selling non-essential items that you own. To sum up everything, it usually means that debt management plan doesn't solve your debt problem at all. It just helps you to get out of trouble this particular moment of life and leaves you with your problems in the nearest future.