Repaying Debt Management

Is it worth buying my way out of debt management?

When people have increasing bad debt and are struggling to make monthly payments to creditors they will often seek outside help from a third party or a professional company. A common and, for many a very useful and helpful solution is a debt management plan.

A debt management plan will enable clients with bad credit and missed creditor payments to have a third party or professional company deal with their creditors on their behalf - the client will make one monthly, more affordable payment to the debt management company and the company will then distribute this payment fairly around the clients creditors.

Their has been many heated discussions as to whether it would be better to stay on a debt management plan or to consolidate existing bad debts with a repay debt management instructions loan or mortgage and effectively buying your way out of debt management and as a result, repaying bad debts altogether and replacing them with one single credit agreement which will mean all your bad debt is repaid.

Which sort of agreement would enable people to buy my way out of debt management?

This is a question often asked by people with debt management plans in place as they ponder whether they would be better suited to clear all the bad debt once and for all.

It is likely that, when someone enters into a debt management plan that their levels of debt would be higher than someone who is not struggling (for instance there would be little point entering into a debt management plan for debts totaling around £3,000). Experience has taught us that a typical debt management balance would be higher, typically £10,000 or more and could even be as much as over £50,000 - there is no financial ceiling regarding a maximum amount owed that can placed on a debt management plan.

With that in mind it is unlikely an unsecured loan would be approved, especially when you take into account that someone on a debt management plan would more than likely have defaults, CCJ's etc registered on their credit file. The financing options then are normally between either a secured loan or remortgage. Both have their plus points and both have their downside.

Benefits of repaying a debt management plan with new finance

Your existing creditors will be repaid
Any bad credit associated with the debt management plan will be cleared instantly
Your credit status will improve as soon as the bad debt is repaid
your new credit will be under a new agreement dealt with by one company
All future credit agreements, such as a remortgage will enable you to qualify for better interest rates as your bad credit will be repaid

Buying your way out of debt management with a secured loan or remortgage

A secured loan or remortgage are often used to repay existing debts by way of consolidation, they can also be used to buy you way out of debt management, even if there is adverse credit listed on your credit file.

To qualify for a secured loan or remortgage you would obviously have to be a homeowner with equity in the property, the exact amount of equity you would need would be determined by the amount you needed to to repay your debt management plan. The amount you could borrow would be determined my the existing finance secured against the property, lender affordability calculations and the loan to value a lender would be prepared to offer, the loan to value a lender would allow will be affected by the type of bad credit registered on your credit file, your income status (full status or self cert) and possibly a few other factors which will be dependent on your circumstances. Typically the 'worse' the bad credit the lower the loan to value which will effect the amount you could borrow.

You should also be mindful of the time it will take to clear of the debt management plan if you stay as you are and the potential term of the secured loan or remortgage, it may be better for you to stay as you are without increasing any further debt as a secured loan or remortgage will mean interest being added to the loan.

Benefits of repaying a debt management plan with a Secured Loan

No legal fees for secured loans
Will complete quicker than a remortgage
Payments are kept separate from mortgage payments
Credit status would improve as soon as bad debts are repaid
Still have one single payment to replace debt management plan

Benefits of repaying a debt management plan with a remortgage

Remortgage's usually have lower interest rates than secured loans
All payments will be wrapped up within your mortgage
Will normally mean lower total monthly payments
Credit status would improve as soon as bad debts are repaid
One payment instead of mortgage payment AND a secured loan

There are many notable benefits to repaying a debt management plan with a remortgage or secured loan as noted above, but it will be worth remembering that you will be increasing the debt and it may mean you will be repaying the debt over a longer period of time - we say may take longer to repay as it could shorten the time it takes to repay your debts depending on your individual circumstances.

If you would like to find out if it would be worth your while to repay your debt management plan with a remortgage or secured loan, simply complete the form at the top of this page and one of our adverse credit advisors will call you back.