Financial Resource

If you can’t afford your monthly repayments to your unsecured debts, then debt management might be the right debt solution for you.

Debt management involves asking creditors to accept lower monthly repayments that reflect what you can actually afford after you’ve set aside enough for your essential living expenses, from mortgage/rent payments to food, petrol and utility bills. In other words, it can help you make sure you stay on top of your ‘priority’ debts (mortgage, secured loans, etc.) as well as your ‘non-priority’ debts (credit cards, store cards, etc.)

Debt management plans can be organised by debt management organisations, or on a ‘do it yourself’ basis.

When a debt management plan begins, you (or your debt management representative) can also attempt to negotiate with your creditors for a freeze/reduction in interest and other charges. However, it is important to note that creditors are not obliged to agree to any changes to the original repayment terms.

Plus, if creditors do accept lower monthly payments, it means you will be repaying your debt for a longer period of time. Unless they’ve agreed to freeze your interest, you’ll end up paying more, too, as your debt will be accruing interest for longer.

On the other hand, if your financial circumstances were to improve (if your income increased, for example), you can ask your creditors to agree to higher monthly repayments, which means you will repay your debts at a faster rate.

Note that debt management is only an option for people who can’t afford to keep up with their payments – if you can, your lenders won’t agree to accept lower payments.

And finally, you should be aware that failing to keep up with the repayment plan you agreed to when you took on a debt will have a negative impact on your credit rating, whether or not you enter a debt management plan. This can make it harder and/or more expensive to access further credit for the next 6 years (the time it stays on your credit rating).

To find out if debt management is right for you, you should contact a professional debt adviser.

Debt management & debt consolidation
Debt management doesn’t require any further borrowing – like some debt solutions, such as debt consolidation, which involve borrowing more money in order to pay off your current debts.

For some people, consolidation could be the best course of action, as they will end up owing money to just one creditor rather than several. However, others may prefer debt management as they don’t think that taking out further credit is an appropriate way for them to get out of debt, perhaps because they’re worried about their ability to keep up with the repayments.

Tags: creditors, debt, Management