How can debt management reduce my debt repayments?

Written by admin on December 7th, 2010

If you can’t afford the agreed repayments to your unsecured debts (credit cards, store cards, unsecured loans, etc.), then a debt management plan may be a good way to clear your debts.

Debt management involves asking unsecured creditors to accept lower monthly repayments that suit your financial situation – i.e. payments that you can afford once you’ve taken into account your essential living costs (utility bills, food, mortgage/rent payments, etc.).

So debt management can help you stay on top of your unsecured debt repayments without running the risk of not being able to afford essential costs like your mortgage/rent payments.

Just bear in mind that creditors are not obliged to agree to any changes to a repayment agreement.

How does debt management work?
Debt management plans can be organised by debt management organisations, or you can negotiate with your creditors and manage your debts on your own.

When you start a debt management plan (whether it’s on your own or through a professional debt management organisation), you can also ask creditors to reduce/freeze interest and other charges, as well as accepting lower monthly payments.

If your creditors agree to lower monthly payments, it means you will be repaying your debt for longer, and unless your creditors have agreed to freeze/reduce interest, you’ll end up paying more, too, as your debt will spend longer gathering interest. However, if your financial circumstances change (if, for example, your income increases), creditors will accept higher monthly repayments, which means you will pay your debts off at a faster rate than before.

Finally, it is important to note that defaulting on an original agreement will show up on your credit report – regardless of whether you enter a debt management plan. This can make credit harder and/or more expensive to obtain for the next 6 years (the amount of time it remains on your credit report).

Do I need to borrow any more money to repay my debts?
With debt management, you are not required to borrow any more money in order to repay your debts – unlike other debt solutions such as debt consolidation.

For people who would prefer the convenience of owing money to one creditor rather than several, debt consolidation may be the best course of action.

However, some people may want to find a way of repaying their debts that doesn’t involve taking out further credit – if, for example, they’re worried about their ability to maintain their payments to that new loan. Someone in that situation may well prefer to enter a debt management plan.

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