A debt management plan is a debt solution designed to help people who are having difficulty with their debt and need some assistance to reduce their debt repayments. It works on the principle of agreeing with your creditors an affordable single regular payment over an agreed length of time. It generally doesn’t involve writing off any of you debt.
The process would usually be administered by a debt management company who will charge for their services.
Here’s what happens in practice
A debt management plan would normally be put together and administered by a debt management company. They will assess your income and expenditure and work out with you what you can reasonably afford. They would then deal with your creditors and reach an agreement on the payment to be made and for how long.
You would then pay the debt management company the monthly payment for the term agreed. They then distribute the agreed payments from your payment to your creditors.
Part of the payment you make to the debt management company includes their fee.
What to think about
As detailed above, debt management companies would normally arrange a debt management scheme for you and deal with your creditors on your behalf.
The important aspect to this is to be aware that this is how debt management companies make their profits and they will generally charge a fee on an on-going basis each month for their services and this can be expensive.
We would always advise therefore that you seek independent advice before speaking to debt management companies to ensure it is the right solution for you and that you select the best and most appropriate option if you decide it is for you.
Downsides of a debt management plan
Apart from the fact that this can be an expensive debt solution there are two other main disadvantages:
- It is an informal arrangement which means that your creditors can change their mind at any time and may take action against you.
- With this type of agreement you will often end up paying more than your original debt in the long run
It will also affect your credit rating.
What’s best for you?
It can often seem that being able to reduce your monthly payments can only be a good thing but it may not be the best solution. You may solve things in the short term but not get to the root of the problem and so it can resurface before you know it.
If you are experiencing debt problems, you should always look for independent expert debt advice and debt help. This would allow you to fully assess your debt problem with an experienced advisor and look at the range of options available to you. You can then make a fully informed decision on how to resolve your problems properly and move on to a better future.
E-P Debt provides free debt advice across Scotland on all matters related to debt. You can speak to experienced debt advisors confidentially and get the advice you need to ensure you make the best decision.