What is a Debt Management Plan?
A Debt Management Plan is an informal arrangement between you and your creditors. A debt management company will take a close look at your situation, communicate with your creditors and agree on one affordable monthly payment. This one payment will cover all of your debts.
A Debt Management Plan would usually be used when either:
- You can only afford to pay creditors a small amount of what is owed each month
- You have temporary debt problems but will be in a better position to make your repayments within a few months
…but a plan can be obtained in two ways:
- You can arrange a plan with your creditors yourself
- You can arrange a plan with your creditors through a licensed debt management company
If you go for the second option, of asking a company to talk to creditors on your behalf, you will make regular payments to the company and they will share these payments out between your creditors.
It’s important to remember that a Debt Management Plan might not be right for everybody, and The Money Advice Service is able to give you free advice about both your eligibility and your suitability: Click here for The Money Advice Service.
In order to get a Debt Management Plan in this way, you need to set up a plan with a debt management company that is authorised by the Financial Conduct Authority (FCA). Click here to check your company’s status.
…but once you are satisfied, this company can then work out your monthly payments, and speak to your creditors, as long as you give full details about your:
- Financial situation
- Your assets
- Your debts
- Your income
- Your creditors
It’s important to note that, unless stated, creditors can still ask you to pay your full debt at a later stage, and that they may take action to recover their money even if you keep up with your repayments. The fact that this form of debt management is informal means that it does not offer the same level of protection seen with the formal options.
Costs involved in Debt Management Plans include setup fees and handling fees, which may be charged each time a payment is made. It is therefore crucial that a person gets to know the charges each individual company applies to arrangements and transactions, as these can differ from one to another.
In terms of eligibility, Debt Management Plans can only be used for unsecured debts, such as those that have not been guaranteed against a property. It should also be noted that plans can be cancelled should a person fail to keep up with their payments.
Finally, let’s look at a few Benefits and Considerations for Debt Management Plans:
Things to consider
|One affordable monthly payment||Your credit rating will be impacted for six years or longer depending on your plan|
|You can request interest and charges to be frozen (at creditors’ discretion)||Mortgages and secured debts are not covered|
|In many cases, creditors will cease contact||Your debt must be paid back in full|
|No need to release home equity||You may incur fees on top of your repayments|
|Quick to implement||No protection for assets|
Get in touch with us
No one should have to deal with financial troubles alone. Whether you’re looking to resolve your financial struggle once and for all or just want to ease the burden by talking things through, we can offer you information and assistance on how best to proceed. Get in touch today to take the first step towards a better financial future. See if you qualify.