How do you get out of debt? Well it depends on how bad your debt problem is. In this post, I look at getting out of debt using a debt management plan.
At the end of this post, I provide links to further reading about what is discussed in this post so you can find out more information if you like.
What is a Debt Management Plan?
To cut a very long story short, a Debt Management Plan is a plan designed to help you with managing your debts. It is an informal arrangement between you and your creditors (the companies you owe money to), to make reduced payments towards your debt.
You can either set up your own debt management plan, or you can either pay for a debt management plan or you could use organisations such as Payplan or the CCCS. These two organisations can help you with setting a plan up and they won’t charge you a penny.
When would a Debt Management Plan be a good idea?
It depends but as a general rule, you should have a reasonable amount of money left after paying all your normal day-to-day expenses. Your total debt should not be too big and your amount left or surplus income should be able to repay the debt in around 6 years.
However, a debt management plan can last longer. I have set up my own debt management plan and based on what I pay, it will take me around 12 years to pay back everything I owe.
However I do not expect this to be the case as this would be a very long and arduous task. In some cases other solutions would be more suitable but you would be better talking to a professional to clarify which option is best for you.
Being in debt for 12 years would be a very long time but there are other solutions if that will be the case for you. I provide a link to more information at the end of this post.
What happens to your Credit Rating when your are in a Debt Management Plan?
Generally, your Credit Rating will be ruined. It depends on how bad your debt situation is at the beginning. In my case, I had already defaulted on my accounts so my credit rating was already destroyed.
It will certainly have an impact on your ability to obtain credit, so it is worth keeping in mind if you are worried about that.
You will likely receive default notices, or arrangement to pay flags on your credit file and these things are not good unfortunately. If you want your credit rating to remain intact, you should try to find the money to pay off your debt and get back on top of things. However that is usually easier said than done.
Do you still pay interest and charges?
You may still do yes. You should write to the companies involved and ask them to freeze these charges if possible. In my experience this has happened but it isn’t always the case for some people. If you are paying for debt management, the company you have your debt management plan with will normally try to do this on your behalf. The same applies for Payplan and the CCCS.
Unfortunately a debt management plan is an informal solution and a creditor is under no obligation to accept your payment proposals, although generally they will in my experience.
Are there other ways to get out of Debt?
There are and you can read more about them on this blog. I will provide some links to this information at the end of this post.
In all cases, I would recommend seeking professional help with your debt problems. That way you should get the best advice for your own individual circumstances.
How I am getting out of Debt
As I mention above, I am using my own Debt Management Plan to manage my debts. It was quite a bit of work at first setting it up but once set up things haven’t been too bad. I still occasionally have to set up new standing orders and write letters as debts are passed on to new agencies but all in all the experience has been OK.
With the amount of money I owe, an IVA or possibly Bankruptcy might have been a better solution. However I want to pay back every last penny so that I learn my lesson.
Finding out More
Setting up your own Debt Management Plan
More Information about a Debt Management Plan
Free Debt Management Plans vs Paid for Debt Management Plans
