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What can a debt management plan
do for you?
Common questions asked and answered
When debts rack up and there seems to be too much month left at the end of your money and payments get missed to loans, credit cards and mortgages it may be time to start looking for solutions to any adverse credit you have incurred. A debt management plan may have the answer, we have listed below the key points to a debt management plan which we hope will give you a better understanding of what a debt management plan can do for you.
How does a debt management plan work?
A debt management plan allows you to make one single affordable monthly payment to a third party (usually a company or firm) who will distribute your monthly payment round to your creditors after they have re-negotiated your monthly payments to come in line with what is genuinely affordable to you.
Your creditors will either accept the new payment arrangements or not, if they do not accept the new payment arrangements the debt management company may look at your disposable income again to ensure you are paying the most you can afford and give the creditors further proof of this. Because
a debt management plan works your affordability to repay your credit based on your disposable income, and your creditors are paid pro-rata it is less likely your creditors will take further action against you as this is very similar to how the courts work out what you can afford.
Will a debt management mean I have to take out a loan?
No - a debt management plan is intended to help you get your financial commitments under control without the need for further borrowing. In certain occasions it may be more beneficial to your long term finances to consolidate your existing debts but this is not what a debt management plan does. A debt management plan will keep your existing debts intact, they will not be repaid in one go or cleared off from day one. Just like a consolidation loan you will make one single payment, unlike a consolidation loan the one payment you make does not end up with any one company - you make the payment to the debt management company and they will deal with your creditors on your behalf. This will mean you do not incur further interest with a new loan and will mean you can start repaying your creditors when you start on the debt management plan without increasing your debts with additional interest from a new loan.
Does a debt management plan effect my credit rating?
If you have never missed a payment to your creditors and all payments have been made on the day they were due and the reason for wanting some form of debt management is to pre-empt financial difficulty it is likely that your credit file will show no adverse credit at all prior to entering into a debt management plan and you will more than likely want to keep it that way. In order for a debt management plan to re-arrange your existing credit arrangements it will typically mean your creditors will default the original agreements in order to set up the new payment arrangements. The defaults will be listed on your credit file and will have an adverse affect on your credit rating and credit status - that being said, it is likely that if nothing is done, if you can not meet your creditor commitments that this will happen anyway and if you have missed a number of payments to your creditors already then defaults or CCJ's may already be registered on your credit file so a debt management plan may not have any adverse affects to your credit rating other than what you have already. If you do have numerous missed payments and defaults etc a debt management plan can be seen on your credit file as an arrangement or debt management which will normally be seen in a positive light as you are taking positive steps to repay and rectify your creditor agreements.
Can a debt management plan reduce your monthly outgoings
Your debt management advisor will work out how much you can afford each month to pay your creditors. The amount you can afford will be based on your income and affordability which will mean all your living costs etc have been taken into account and the monthly payment to your creditors will be based on your disposable income - this ensures any payment arrangement will be affordable and maintainable thus helping to stabilising your monthly finances.
How much does a debt management plan cost?
That's hard to say as the payments to your creditors are based on what you can afford (there will usually be a minimum requirement of £150 or £200 per month to repay your creditors) the debt management company will take a monthly fee from the payments you make to the creditors, typically the higher the monthly payment the more disposable income you have which will normally mean there are more debts involved so the way a debt management company earns their money is simply based on what you can afford (for instance they may take 20% of any monthly payments). This will cover all their work with your creditors, all letters, stamps, postage, phone calls etc.
Can I do this myself?
Yes - although how much success you believe you may have in dealing with your creditors and requesting they stop adding charges and interest may mean you do not want to do it yourself. There are a few government charities that may be able to help you sort things out yourself. The CCCS (Consumer Credit Counselling Service) will be able to help with your income calculations and letters to creditors, they will not normally deal with the creditors on your behalf though which again - may mean you would prefer to have a professional company managing your debts.
How long does a debt management plan last?
The debt management plan will usually stay in place until all the debts are repaid. What that means in real terms is it will take as long as it takes depending on how much you can reasonably afford to repay your creditors and the value of debt you have. The term will also be affected by how your creditors act whilst you are on a debt management plan, they may add further fees and / or interest to the loan - any debt management company will try very hard to negotiate with your creditors on your behalf to get all future charges and interest stopped but the decision to do this will be made by your creditor. A number of people tend to stay on debt management for a number of years until they are in a position to repay the debts in one lump sum, for example through a remortgage or secured loan at which point the debt management company should be able to negotiate reduced settlement figures on your behalf.
Who do I speak to in order to sign up for a debt management plan?
That's easy - simply complete the form at the top of this page and we will call you back.
Debt management plans have criteria which must be met before a debt management company will manage your debts for you. We will be able to access your circumstances and - depending on your needs and budget either recommend a debt management plan or we could discuss other options which may be more suited to your circumstances - whatever we recommend, we will always have your best interests in the forefront of any products we recommend.
