Financial Resource

If you are struggling with debts, you may well be dealing with a lot of stress.

There are a number of debt solutions available that could make your debt more manageable and help you become debt free; a debt management plan is one of them.

How does debt management work?

If you enter a debt management plan via a professional debt management company, any negotiations will be done by a debt specialist. They will attempt to negotiate lower monthly repayments, and may ask creditors for a freeze or reduction in interest (and other) charges.

Please note, though, that creditors aren’t obliged to accept any changes to the original repayment plan. If they don’t agree to freeze/reduce interest, you’ll end up paying more interest overall, as your debt will spend longer accruing interest as you’re repaying it more slowly.

When you first contact a debt management company, they will help you work out your disposable income (total income minus essential expenditure, such as day-to-day living expenses and secured debt repayments).

Different debt management organisations work in different ways. Some debt management companies offer distribution services – meaning you will pay your disposable income to your debt management company and it will be distributed amongst your unsecured creditors as agreed, according to the amount you owe each of them (this is called a pro rata payment).

Please note: defaulting on a repayment agreement (i.e. not keeping up with the terms you originally agreed to) will show up on a credit report, whether or not you actually join a debt management plan. This will stay on your credit report for six years, potentially making further credit more expensive and/or harder to come by.

Debt management and secured debts

A debt management company can help you to work out a budget that helps you make your payments to your secured debts by reducing your unsecured debt repayments to an affordable level based on your disposable income (the amount that’s left after you’ve taken into account your essential expenses, from mortgage/rent payments to utility bills, food and petrol).

Other benefits of debt management include a regular review of your finances, plus subsequent re-negotiations if necessary. Some organisations will provide you with a dedicated debt professional, who will be there to answer any questions and deal with any problems you may have.

Only have secured debts?

If you are finding it difficult to keep up with repayments to your secured debts, then you should speak to your lender. For example, if you are struggling to make payments on your mortgage but you believe your financial difficulties are only short term, some lenders may allow you to have a short ‘payment holiday’ (a period in which you make no payments at all). This payment holiday might last a few months, which should allow you enough time to get your finances back on track before you make your next payment.

If you do find yourself struggling with any debt repayments, it may be worthwhile speaking with a professional debt adviser. A little advice may be all you need to get your finances in order. A debt adviser could also advise on government schemes which can help people who are experiencing difficulty making their mortgage repayments.

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