A debt management plan is an informal arrangement between you and your creditors to repay a debt over a longer than originally agreed period of time. The debt management plan is different to the IVA and bankruptcy as it’s not a formal plan.
The agreement can be changed by either party at any stage because it’s not legally binding like other debt solutions, which also offers less protection. The interest and charges are requested to be frozen in a debt management solution, however this is not guaranteed.
A debt management plan may be the most suitable debt solution for you if you don’t want to enter a formal debt solution or you can repay your debt in a sensible period, as long as the interest and charges are frozen.
Although you will repay your debt in full, interest and charges are not guaranteed to be frozen which could extend the length of time you’re paying. The benefit of the debt management plan is that another company will be managing your debts for you and it will be your responsibility to pay your debt management company so they can distribute your funds accordingly.
Free or For Profit?
It’s always better to deal with a free debt management company, rather than a for-profit organisation because every penny you pay will go towards the debt. A company charging you a fee will retain a setup fee for the debt management plan along with a percentage of your monthly contributions.
You don’t need to use a debt management organisation to setup an agreement with your creditors and in some cases it’s best to deal with them yourself.
If you would like help or advice with a debt management plan contact Debt Support Trust on 0800 085 0226.
Benefits of a Debt Management Plan
- Repay Your Debt: You will repay your full debt which could have a less negative impact on your credit rating
- One monthly Payment: You will make one monthly payment to the debt management organisation who will distribute it to your creditors
- Affordable Plan: If the debt management plan has been setup correctly you should only be paying an affordable amount to your debt
Negatives of a Debt Management Plan
- Informal Arrangement: Because a debt management plan isn’t a formal arrangement it can be changed by your creditors without any notice
- Interest & Charges: Your debt could increase if interest and charges aren’t frozen or your payments don’t cover them
- Credit Rating: A default could be added to your credit file which might hinder your chances of getting future credit