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Debt Management Facts
Get the facts about debt management and debt management plans
Debt management is a term that can be misunderstood, in this article we hope to clear up a few misconceptions and give a clearer picture of what a debt management plan is, who they are for and how they can help you.
What is a debt management plan?
A debt management plan is an informal, none binding agreement between yourself and your creditors. It will usually be handled by a third party (usually a company or business) who will negotiate with your creditors on your behalf. They will look at your income, your expenditure and work out your disposable income, that is the amount of monies each month you have available to pay your creditors after living costs and and priority debts have been taken into account. The creditors will then get a split of your disposable income on a pro-rate basis (i.e. the company you owe the most to will get the most money, the company you owe the least to will get the least money). Doing it this way will ensure a fair repayment schedule is worked out, this is also the way in which the courts will work out your disposable income and with that in mind a creditor will be less likely to want to proceed with a court action against you - the courts will more than likely 
agree with a professional debt management company that you are paying what you can afford and each creditor is getting the correct percentage of your disposable income based on the percentage of their amount of your total debt.
Who are debt management plans for?
Debt management plans are there to help people struggling with debts, it can sometimes be hard for people to get their point across to a company they owe money to that they are paying all they can afford to pay, a debt management company will be more able and, very likely be heard more by the creditors when it comes to them accepting a lower monthly payment. The criteria for debt management can vary from company to company but would typically be something like
- Minimum 3 creditors
- You have at least £150 per month to pay your debts
- Have a regular form of income
Whilst the criteria for a debt management plan may seem simplistic, they do make sense - if you only owe money to 1 creditor then no payments can be made pro-rate. If you have little or nothing to pay each month its unlikely the creditors will not entertain any offer of payment and the debt management company will needs to make money, this is typically done by charging a set percentage (between 15% and 20%) of your monthly payment which pays for the company to manage your debts on a monthly basis, and if you do not have an income - you will not be able to maintain regular payments to creditors.
How do debt management plans work?
The debt management company will work out your income per month, they will then deduct living expenses (such as mortgage / rent, gas, electric, work travel costs etc) and any priority debts. Whatever is left will be your disposable income and this is the figure which the debt management company will use to repay your debts as this figure will be reached after taking into account your living expenses it will (or should) be affordable to you. As mentioned above, payments are made pro-rata so each creditor gets a fair monthly payment based what you can afford and how much you owe them.
The plan will typically stay in place until the debts are completely repaid or you cancel the plan however if your are benefiting from the affordable lower monthly payments it is unlikely the plan would be cancelled.
Will a debt management plan effect my credit rating?
The simple answer is yes, in order to arrange new payment arrangements the current creditor agreements will normally be defaulted which will be listed on your credit file. In most cases this wouldn't really matter as the applicant would not be wanting a debt management plan if they could afford the current credit agreements - most of the time the debts will already have missed payments associated with them which will have already effected your credit rating or payment profile
A debt management plan may be right for me, what should I do next?
Simply fill in the form opposite or telephone 0845 094 2331. The best way to contact us is to complete the form, we can then telephone you to discuss your personal needs, requirements and budget.
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