Financial Resource

Your debt questions answered – debt management

When people get in debt and call the Help With Debt helpline, the question most asked of the advisors is how do I get out of this mess. We are able to explain a host of ideas and solutions, but the three most popular are bankruptcy, the IVA and debt management.

In the first two articles in this series I explained by way of questions and answers, the main concerns raised by our callers. Here I will now deal with those relating to debt management.

What is a debt management plan?

In short a debt management plan is an informal arrangement by which a person in debt agrees to make payments to his creditors out of his disposable income. The payment is sent in one sum to a debt management company who distribute it across all the advised creditors according to how much each is owed.

The debt management company negotiate an appropriate settlement plan on behalf of each debtor that suits their ability to pay. They should attempt to stop any charges and interest from accruing whilst payments are being made, so that the actual debt itself is being repaid.

How does debt management affect my credit rating?

If you are already in default on your accounts it is likely that your credit rating has already been affected. If you cannot meet your contractual terms, then your credit rating will be affected. It will remain on your credit file for six years.

How is a debt management plan implemented?

The debt management company will conduct a short interview during which they will ascertain your income and expenditure and therefore what you can afford as a monthly payment towards your debts. This offer is then put to your creditors, and if accepted, your payments will be collected by the debt management company and after charges, distributed pari passu, ie equally according to the level of debt owed.

Will I be credit checked?

There is no lending involved here and so no credit checking takes place.

Will I still be harassed by debt collectors?

At the start of the plan you may experience some calls from debt collectors, this is because your plan is informal and it will take time for some departments to take notice that regular payments are being received.

Does a debt management plan cover all my debts?

It will only cover your unsecured debts. You can leave out some debts, but those not covered can be pursued by all and any means.

Is my house at risk?

As your mortgage is not covered by these payments, you need to make sure that you pay that in full every month. Your income and expenditure will have taken into account your mortgage commitment and so you should have money available for the mortgage.

Can I alter payments?

If your circumstances change, you can amend your payments accordingly. The key point is that you continue to pay what you can afford each month.

How can payments be made?

These can be made weekly or monthly by cheque or standing order. You should try to ensure that you are not taking on more credit to settle these debts.

If you are in debt and you think that a debt management plan may help you, you should call a help with debt helpline advisor free on 0808 160 5577 now.

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