Debt Management Plan Pros and Cons

Debt Management Plan

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This post talks about Debt Management Plans and discusses Debt Management Plan Pros and Cons.

A Debt Management Plan can be used when you are experiencing difficulties making your contracted repayments to your creditors. For example when you are behind with your payments.

A Debt Management Plan is an informal solution, meaning that a Creditor could still take further action against you if they wish to. They may also not accept your repayment proposals.

Debt Management Plans can be helpful as they allow you to sort out your debt problems and get back on track. Below I list the pros and cons of a Debt Management Plan.

The Pros of a Debt Management Plan

1. You will only make one payment towards your debts instead of separate payments to each creditor. (Unless you are setting up your own plan, find out more about that by clicking here).

2. Under most circumstances, your creditors will freeze further interest and charges. However this is not always the case. (Out of my 23 debts all have agreed to stop charging interest).

3. Less stress. You are less likely to be contacted by a debt collection agency once your debt management plan is set up. They could still contact you though.

4. Once you complete the Debt Management Plan, all your debt will be repaid.

5. A Debt Management Plan is an informal arrangement which avoids formal insolvency procedures such as Bankruptcy or an IVA.

6. The amount you pay out to all your debt will be reduced to a level which you can afford.

The Cons of a Debt Management Plan

1. You will have to repay all your debt in full. None of the balance will be written off or reduced.

2. A Debt Management Plan is an informal solution. This means that a creditor is under no obligation to accept your repayment offer. They may still contact you requesting full repayment of the outstanding debt.

3. Mortgages and other debts that are secured on your property for example are not covered by a Debt Management Plan. You would need to deal with these separately.

4. Your Credit Rating will suffer as a result of a Debt Management Plan.

5. It can take a very long time to pay off your debt if you are in a Debt Management Plan. In some cases you may never pay it off.

6. Some Creditors may not freeze or stop charges meaning you could be in debt for longer.

7. If you pay for a Debt Management Plan you could end up paying more than you need to. There are free Debt Management Plans available.

Debt Management Plans concluded

Before deciding on any debt solution you should consider all the available options. A Debt Management Plan does have its benefits but there are also some disadvantages as well. It all depends on your own circumstances as to which would be the most effective way to sort out your debts.

Sometimes other debt solutions such as an IVA or Bankruptcy are better suited to resolving debt problems. If you would like further information please see the helpful links section of this blog.

Alternatively you can read more about other alternative debt solutions by reading my post on help getting out of debt.

Comments

  1. Laura says

    Do not sign up for any debt management plan. The charges are huge no matter what they state otherwise. I just lost £3,500 of savings that were in my “plan” as now “out of business! ” GET A FREE PLAN with the CAB is the best advice.

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