finances

Debt Management is an excellent tool that can effectively be used to help you take control of your financial affairs, and is relatively easy to organize. It is a short term, flexible debt solution that involves extensive negotiations with your creditors and eventually culminates in the drafting of an informal agreement known as a Debt Management Plan.

A debt management plan is based on what you can reasonably afford to pay.  How long the plan lasts for depends on how much you can afford to pay. For example, if your debts are $10,000 and you can afford $100 per month, then it will take 8.3 years to clear the debt: $50,000 divided by 250 = 200 months.

These plans can only be used to cover unsecured debts. Secured loans cannot be put into the plan. Even though the vast majority of debts dealt with through these debt plans are for credit cards, they can include personal loans, store cards, bank overdrafts, catalogue debts, etc.

How it Works

When you apply to a debt management company, you are assigned a professional debt advisor who will go through all of your finances with you. The debt advisor will help draft a financial statement to get a clear understanding of your precise financial situation. The advisor will also work out exactly how much you can reasonably afford to pay to all of your creditors each month.

Your debt advisor will effectively take over all dealings with your creditors and negotiate new repayment terms with them based upon how much you can afford to pay. This informal agreement usually involves some of your debt being written off, interest and other charges being frozen and often reduced. The final outcome is that you make one lower monthly payment to the debt advisor who will then distribute the amount equally to your creditors. The debt management company deals with your creditors on your behalf, and all of the threatening phone calls, letters and other forms of contact should cease thereafter.

Some debt management companies charge a fee for their services which is deducted from the amount that you can afford to pay your creditors each month. Others do not charge a fee but are paid commission by creditors on the assumption that the debt management company will recover some of the debt for them.

Is Debt Management Right For Me?

As with any debt solution, debt management is not suited to everyone. It is mainly designed for people in the following circumstances:

• People who are struggling with high levels of unsecured debts that they cannot afford to repay.
• In the UK, people with debts of £12000, who do not qualify for an IVA.
• People who have lots of equity in their properties, but do not want to remortgage or take out an unsecured loan.
• People who want complete confidentiality.
• People who are looking for a short term solution to their debts issues.
• People who don’t know how to negotiate with their creditors to get the best deal.
• People who can easily pay off their debts but don’t want a change of lifestyle in order to do so.

Find out the pros and cons of debt management.

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