What is a debt management plan?
A debt management plan is an option that may help you to avoid bankruptcy. A debt management organisation will calculate what you have available to pay your creditors and negotiate new affordable repayments on your behalf.
If the plan is accepted by your creditors you will make one monthly repayment to the debt management organisation, who will then pay your creditors.
What is the purpose of a debt management plan?
The overriding purpose of a debt management plan is to allow you to repay your debt. It is also sometimes used:
- To demonstrate your suitability for an IVA.
- To persuade your creditors not to take legal action whilst you take steps to improve your financial position.
Debt management plan advantages
- Repay your creditors with an affordable repayment
- Interest and charges may be frozen
- Avoid bankruptcy
- A debt management company will make the payments
Debt management plan disadvantages
- If you are paying a debt management organisation a fee then you will end up repaying more than you owe
- The is no debt forgiveness, you will have to repay all of your debt
- No legal obligation to freeze interest and charges
- It will take longer to repay the debt as you will be paying less each month
- Default notices will be recorded on your credit report as you will be defaulting on your original agreement
- Crown debts such as tax cannot be included
- Probably not legally binding on your creditors, in which case they can change their mind.
Debt management plan considerations
You should give serious consideration to the length of the debt management plan. If it will take you longer than 5 years then you should also consider an IVA or personal bankruptcy. You do not want to be in debt for the rest of your life.
How can I get a debt management plan?
Due to the recent economic problems there are now hundreds of organisations offering debt management plans, mainly for their own pockets!
If you are considering a debt management plan the first consideration you should have is where to go for advice. Many companies out there persuade you to use the debt management plan as a debt solution purely for the benefit of their profit.
