Debt management plan

What is a debt management plan?

A debt management plan is a formal agreement between you and your creditors. Debt Management‘s aim is to reduce your outstanding unsecured debts at a reduced level over a fixed period of time to help you regain control of your finances. What is the aim of debt management? Debt Management allows you to pay off some of your outstanding finances if you are unable to pay off all of them. Debt Management plans are based around what you can realistically afford on a monthly basis. To achieve an accurate figure, it is necessary to carry out an income and expenditure to establish what monies are coming into the household and what is being paid out. An income and expenditure includes everything including your rent/mortgage, any secured loans, utility bills and other essential living expenses (food & TV license etc). Once the income and expenditure is completed, the leftover amount is called your disposable income (the income that you need to survive the month). The disposable income is what most debt management plans are based on. Is debt management right for me?

Debt management is appropriate for people that are struggling to pay their outstanding debts and also pay out for living expenses and other outgoings. You are finding the monthly repayments hard to meet and you are focusing all your income on your outstanding debts rather than your essential living expenses (food, gas, electricity & water etc).

How does a debt management plan work?

When you enter a debt management plan, your payments are reduced and re-structured with your creditors based around your monthly payment. This is a benefit to people who cannot afford the creditors minimum payment or monthly payments so it will take longer for you to pay them off but it eliminates the struggling element. Debt Management plans are flexible in that they allow you to lower your monthly payments one month and increase it another if your income or circumstances change. In a Debt Management plan, the interest and charges are requested to be frozen when you take the plan out either by the Debt Management Company or if you’re doing it yourself. Creditors do not have to agree to this and may continue to charge you interest. Also, the Debt Management Company/you may request that all contact from the creditors be stopped also. This, like requested interest and charges to be stopped, is likely but the creditors do not have to agree to it. If you have outstanding finances and cannot afford the monthly repayments, your credit rating will have already been affected. The more important point here is that the debt management plan is reducing the monthly payments that you agreed with the creditors but is an advantage to you if you are struggling badly as they are still receiving a regular monthly payment. It is more important to get help as quickly as possible rather than worry about your credit rating. The main thing is to accept that your 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.

External links

• How to sort out your debts - Citizens Advice Bureau
• Scottish Debt Arrangement Scheme - Debt Arrangement Scheme
• Debt Management Plan - Debt Management Plan - By definition
• http://www.cccs.co.uk/InfoCentre/EnglandandWales/Debtsolutions/Debtmanagementplan.aspx - CCCS Debt Management Plans