Debt Management Plans, the Why’s and the Wherefores

Debt Management plans are a way out of debt for people who have unsecured loans that they are finding they can no longer afford to repay. These plans are only appropriate for people who, after paying all their usual living expenses, have at least some residual income and they owe money to a minimum of two creditors.

These plans have a number of advantages compared with other ways of dealing with unaffordable debt. These are:

1)      Only one monthly payment is made and this is to your debt manager who then distributes an agreed amount of money to the various lenders

2)      In most cases interest is frozen and so too are additional charges such as penalties for late payments

3)      The amount that is paid every month is an affordable amount that the borrower has agreed to and it takes into account everyday expenses and income

4)      It provides peace of mind and frees the individual from having to deal with creditors, which can be upsetting for many people

5)      It allows you to see when your debts will be paid off and you how long it will be before you are debt free.

There are also some downsides. These are that even if a creditor agrees to the plan, the agreement is not legally binding and if they think in the future that they can force you to repay more money then they can still sue you in court.

Debt management plans do not require any additional loans to be taken out. They are simply a mechanism for managing existing debt in an affordable and structured manner.  As a professional debt manager will be operating the plan on your behalf, it will be necessary to pay a fee. This will be included in the monthly repayments you make. The fee charged is typically 15% of the total repayments, though this can vary a little depending on circumstances.

The final downside is that the fact that you have such a plan will be visible on your credit file, so you will find it more difficult to borrow additional money in the future.