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Debt Management Plans

Debt management plans.

A debt management plan is an informal arrangement designed to help individuals struggling with debt regain control of their finances. It involves working with a reputable debt management company to create a personalised plan that fits your income and financial situation. The plan aims to make your debt repayments more affordable by negotiating with your creditors to reduce or freeze interest rates and charges. It consolidates your debts into a single monthly payment, which you can comfortably manage.

By adhering to the plan, you can gradually repay your debts over an extended period, providing you with a viable path towards becoming debt-free. A debt management plan is a responsible and regulated solution that allows you to address your debts in a sustainable and structured manner, while protecting your assets and avoiding more severe measures like bankruptcy.

Debt management plans are normally used under these circumstances:

  • You can only afford to pay a small amount to creditors each month
  • You have problems with debt but will have the ability to make repayments within several months
  • You can organise a payment plan with your creditors yourself, use a licensed Debt Management Company (fees are charged) or via the free sector
  • Payments are made regularly to the company
  • The company divides the money between all your creditors

Pros

You only pay one affordable payment to the DMP company.

The payment is flexible depending on your circumstances, it can increase or decrease.
Payments can be reduced & interest rates can be frozen by creditors, however, they are not obliged to do this.
Some charities & organisations provide this service free of charge (you can contact the Money Advice Service for more information).
Avoids the need for a Formal Insolvency Procedure.

Cons

All the creditors need to agree to their individual arrangement for this plan to be effective.

Interest & charges are not guaranteed to be frozen.

Your credit rating is affected as your monthly payments are not contractual.

Debt management plans can affect your credit file for a minimum of 6 years, as in most cases you will have defaulted on the original credit agreement terms once you enter into the arrangement.