In the current climate, it seems that the chances of falling into debt problems are greater than ever for so many people.
If you’re repaying credit cards or a personal loan, for instance, rising bills and stagnant wages could put some serious pressure on your budget. As a result, it could take just one thing, such as a drop in income or a larger-than-expected bill, to turn affordable debts into unmanageable ones.
A debt management plan could be a suitable way of lowering your repayments to a manageable level if you can no longer afford them – so you’ll only repay what you can safely afford towards your unsecured debts every month.
If you’ve heard of debt management, but aren’t too sure what it involves, let us explain the basics for you.
What is a debt management plan?
A debt management plan is a new plan for repaying your unsecured debts with reduced payments every month. These new payments will have to be negotiated with your unsecured lenders – they don’t have to agree to smaller payments, but it’s likely to be an option if your lenders think it’s the best way of getting back the money you owe them.
What will the size of my monthly payments be?
The point of a debt management plan is to give you an affordable way of repaying your unsecured debts once again. This being the case, you won’t be expected to pay any more on a debt management plan than you can safely afford every month.
Your monthly payments will be calculated to fit affordably around all your basic living costs (e.g. rent/mortgage, food, utilities, etc.).
Furthermore, although repaying your debts with smaller payments over a longer period could cost you more overall due to interest (and damage your credit rating for up to six years), knowing that you’re in control of your debts could be a big relief.
How long will a debt management plan last?
Once a debt management plan has been agreed, you’ll begin making your new payments every month – and keep making them until you’ve repaid your debts in full. This means that there’s no set timeframe for a debt management plan, as it differs in every case, and can vary if your situation changes.
If your circumstances improve enough and that means you can make your original repayments again, it’s likely that your management plan will be able to end at that point.
Is a debt management plan right for me?
A professional debt adviser can discuss your options with you and help you decide if a debt management is the best approach for you.