Is a debt management plan right for you?

The answer lies in your debt level, your income, and your commitment to stick to the plan. If you have non-priority unsecured debts and a steady income, a debt management plan may be suitable.

However, it’s important to read reviews of debt management plans before deciding. You should also use a debt management plan calculator to understand your possible payments.

What is a debt management plan?

It’s important to know how a debt management plan works, who manages it, and whether it’s something you could set up yourself. Understanding these basics is the first step in deciding if a debt management plan is right for you.

How can a debt management plan help you?

A debt management plan is a structured plan aimed at making your debt more manageable. Instead of juggling multiple payments to different creditors, a debt management plan combines your payments into a single monthly payment.

This approach simplifies your debts and some creditors may agree to freeze interests and charges. However, entering a debt management plan may affect your credit rating because your credit file may show reduced payments.

Who manages debt management plans?

Debt management plans are usually managed by debt management companies. These companies act as the middleman between you and your creditors. They'll assess your financial situation and create a comprehensive plan based on it. This involves negotiating with your creditors to agree new repayment terms.

Can I do a debt management plan myself?

You can manage your own debt management plan, but it can be difficult without professional help. Debt management companies can help you negotiate and keep agreements with creditors.

Free debt management plans are also an option. Free debt management plans from charities like StepChange or PayPlan are fully regulated and they often offer the same key services as paid ones.

Who can benefit from a debt management plan?

Is a debt management plan the best option for you and your situation? The answer varies based on a few factors.

Eligibility for a debt management plan

To be eligible, you generally need to have non-priority unsecured debts and a steady income. This ensures you can maintain monthly payments. Creditors must also agree to the plan, so good communication is vital.

Types of debt suitable for a debt management plan

Typically debt management plans are best for unsecured debts like credit cards, personal loans, and overdrafts. They're not usually suitable for secured debts like mortgages or auto loans and generally do not cover priority debts such as rent, council tax, or utility bills.

How does a debt management plan work?

Understanding how debt management plans work is essential for effective debt administration. Below is the course you'll generally follow.

Consultation: Start by consulting with a debt management company. They'll provide initial guidance and assess your financial situation.
Budgeting: The debt management company will review your income, expenses, and debts. This serves as the reference for your debt management plan.
Agreement: Once your budget is clear, the company will negotiate with your creditors. The aim is to agree on new, more manageable repayment terms.

From this point forward, you make a single monthly payment to the debt management company. They disperse these funds among your creditors as per the agreement.

What is the payment structure of a debt management plan?

Once you've set up your debt management plan, understanding how your payments work is crucial. This approach is part of a comprehensive strategy to manage your debts.

Calculating monthly payments

The debt management company will use your budget assessment to determine your monthly payment. The goal is to find an amount that is both manageable for you and acceptable to your creditors. You can often use a debt management plan calculator to calculate possible payments.

Disbursement to creditors

Your single monthly payment goes to the debt management company. They then distribute the funds among your creditors based on the terms negotiated. This form of debt administration simplifies the entire process for you.

How long does a debt management plan last?

The duration varies significantly depending on your individual circumstances, but it's an important aspect to consider.

A debt management plan usually lasts between five and ten years. However, this can change based on several factors:

Debt Amount: The more you owe, the longer the plan may last.
Monthly Payment Capacity: The more you can afford to pay each month, the quicker you'll clear your debts.
Creditor Terms: Some creditors might agree to lower payments but for a longer duration.
Changes in your circumstances: If your income increases or decreases, the duration of your plan might change.

Remember, while a debt management plan can offer much-needed relief, you should not consider it set in stone. You can review or even cancel a debt management plan if it doesn't suit your needs anymore. However, there may be fees and implications for your credit score when you cancel a debt management plan. Always keep tabs on your situation and make adjustments as necessary.

Conclusion

A debt management plan helps you pay off your debts at an affordable rate. It simplifies multiple payments into one and is managed by debt management companies, offering a structured way to handle what you owe.

At Central Trust, we can offer loans for people with debt management plans. If you're considering a secured loan, speak to our qualified advisor. Contact us free of charge at 0800 980 6273, or complete our enquiry form, and we will return your call at a convenient time.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON YOUR HOME, THE LENDER MAY REPOSSESS IT.