A debt management plan is an informal solution between you and your creditors to help you repay your debts.
A debt management plan can be helpful in this situation as it allows you to regain control of your finances and make a fresh start. Under a debt management plan you make an offer to repay that is affordable to you after paying all your other expenses.
How does Debt Management Work?
When setting up a debt management plan, you are entering into an arrangement with your creditors to make partial repayments towards your debts.
Each payment is calculated according to the total amount you owe. The end result is a fair repayment amount is offered to each creditor.
You would normally appoint a company to act on your behalf. They will set up your Debt Management Plan and make payments for you. This is much easier than making payments yourself to many creditors as with a DMP you only make one payment.
A debt management plan is not always suitable, especially if you have a lot of debt and it will take you a long time to pay it back. It is advisable to talk to a professional before making a decision so you can chose the best solution for your debt problems. The Debt Help section of this blog provides links to organisations who can help you.
You could also set up your own debt management plan. However you would still need to make payments to each creditor rather than one payment if you opt for a company to manage your debts on your behalf.
What are the benefits of a Debt Management Plan?
- You make one monthly payment towards your debts.
- Your Creditors may freeze interest and charges.
- Less Stress. Once a Debt Management Plan is set up, you are less likely to be contacted by the creditor or debt collection agency.
- Once you complete the plan, all your debt will be repaid.
What are the Disadvantages of a Debt Management Plan?
- You will have to repay your debt in full, it will not be written off or reduced.
- A creditor is under no obligation to accept your repayment and may still contact you requesting full repayment.
- Mortgages and other secured debts are not covered by a Debt Management Plan.
- You could end up repaying your debts for a long time.
- As a DMP is an informal solution and you may find that interest and charges are not frozen by your creditors.
How do you set up a Debt Management Plan on your own?
I have written about setting up your own Debt Management Plan and dealing with debt. It can be done and that is how I am currently managing my debts. However you would still be repaying each debt individually instead of making one payment.
If you are an organised person then you should have no problem with a self-administered debt management plan.
Where can I get Debt Help?
Visit the Debt Help section of this blog to see a list of companies who can help you with your debt problems.