Could debt management be the right approach?

With so many monthly budgets squeezed in the current climate, you may have found that any unsecured debts you were generally repaying well have become unaffordable.

If you find yourself in that situation, entering into debt management may be the best approach for you. Let’s look at what exactly being on a debt management plan involves.

 

Setting up a debt management plan

If you find you can no longer afford to repay your unsecured lenders as initially agreed, it’s important to get professional advice, so you can find the best solution for you. If you can afford smaller monthly payments that could see your debts repaid in full over a reasonable amount of time, you may be advised that debt management is the most suitable way forward with your debts.

There are two potential ways of setting a debt management plan up: either on your own or with the help of a debt management company. If you’d prefer to use the services of a professional organisation, this debt management company could help you.

Whichever approach you decide to take, your lenders would be asked to accept lower monthly payments. These would be worked out after all your essential monthly costs have been taken into account, so all your financial commitments should be safely covered.

 

How a debt management plan works

Your unsecured lenders are under no obligation to accept a new repayment plan, but if they do, you’ll start making reduced monthly payments. Your lenders may also agree to freeze the interest on your debts too, which could have a big effect on the overall cost – if the interest isn’t frozen, your debts would continue to get bigger as you’re paying them off, and doing this more slowly would give the interest more time to grow (meaning it would cost you more in the long run).

In most cases, you’ll continue to make these reduced payments on a debt management plan until you’ve paid your debts off in full – or until you can start making your original repayments once again. As a result of making smaller payments, your credit rating will be affected for up to six years, which is likely to make getting any further credit during this time more difficult.