Getting into debt can be easy enough to do – whether you’re spending on credit cards, going into an overdraft every month, or taking out a loan to cover costs.
However, keeping on top of those debts isn’t always as easy! If you find you can no longer afford your repayments, it’s important to find a way of getting back on top of them as quickly as you can.
A debt management plan is one potential way of repaying your unsecured debts at an affordable pace – but you will have to watch your finances carefully to make sure you can stick to the agreement.
Let’s look at how you’d go about setting up a debt management plan, and how it would affect your finances.
Agreeing to a debt management plan
If you can no longer afford to keep up with your unsecured debt repayments, you should get professional debt advice and help to find a way of sorting out the problem.
A debt management plan could be recommended as the best solution for you. It’s an informal agreement in which your lenders will be asked to accept lower monthly repayments over a longer period of time, allowing you to start repaying your debts at an affordable rate.
If you decide to work with a professional debt management company, an adviser will talk to you about your finances and what commitments you have to budget for every month: utility bills, mortgage/rent payments, food, etc. Taking this into account, they’ll work out how much you can realistically afford to repay your unsecured lenders every month.
The debt management company will then ask your lenders if they’ll accept these lower payments. Lenders tend to accept debt management plans because, although you’ll be making smaller repayments than originally agreed, they can see that you can’t afford those original payments any more – and that this really is the best way for you to repay what you owe.
If your lenders do agree to this new repayment plan, they may also agree to freeze interest and charges on your debts. However, if they don’t do this, you could end up repaying a larger amount in total – as interest will accrue on your debts for longer.
Making lower repayments will be recorded by credit reference agencies for six years, which could make getting further credit difficult during this time. However, getting out of debt at an affordable pace could really take some financial pressure off your shoulders.
How much money will I have left every month on a debt management plan?
You’ll be expected to repay pretty much as much as you can afford every month on a debt management plan – but only after your essential costs have been safely covered. This means that you’ll have little ‘spending money’ once all your outgoings have been covered from month to month.
Having said that, although you’ll have little to spend on non-essentials, knowing that you’re repaying your debts at a manageable rate could really help to reduce your stress levels – and could help you limit the damage to your credit rating.