How Does A Debt Management Plan Work?
How does a debt management plan work? Debt Consolidation Loans explains more.
There are companies who specialise in creating Debt Management Plans in these particular situations. They can discuss how you could do this on behalf of the companies you owe money to in order to try to create a viable plan that financially suits you. A debt management plan is a possible way to tackle debt without having to go through any legal procedures or bankruptcy.
The plan takes into account what you can afford to pay each month. It is agreed for a period of time in order for you to pay it all off in full, with no reductions or write-offs.
Ideally, it would be good to find an agreement where all interest charges are frozen so the balance doesn’t keep increasing. The idea is that you amalgamate all your debt into one single monthly payment. Then the Debt Management Plan provider will divide the monthly amount between all the companies you owe money to and have agreed to the plan.
But don’t assume you will automatically be offered a debit management plan, companies aren’t obliged to agree to this approach.
However, it’s highly likely that it would be considered in order for them to recover the money owed rather than through a debt relief order or bankruptcy. Just to note, a debt management plan won’t take into account any debts that are guaranteed against assets, only unsecured debts. You could still find yourself faced with court or a collection action if the company you owe money to doesn’t agree to a plan.
It’s likely that you could be charged a fee to create a debit management plan by the debit management company, but there are some companies who offer this service without a fee. It’s worth doing some research and looking around. It’s worth contacting any organisations that offer free, independent advice before they establish a debt management plan. If you qualify, these organisations may even offer free plans, which would obviously save you money with making the debt repayments.
For some people, it’s a great advantage to make a single payment each month to help to take control of their finances.
The companies agreeing to be part of the plan, who you owe money to, may agree to freeze their interest and other charges and hopefully not make any more calls or send you any more letters. All the unsecured debts you’ve merged into the plan should be cleared once the plan is complete, which allows you to focus on thinking about how you financially plan for the future.
It’s not always a positive action to take out a debt management plan and they aren’t always a solution for everyone. Debts must be repaid in full and can’t just be written off. There’s no obligation by a company to agree to a debt management plan and they could just ask you to pay it off immediately.
If you are looking for help with mortgage repayments, these cannot be included in the plan as it’s considered a secure debt so you wll need to look for a different solution.
There must be enough money for basic living costs and they must be accounted for before a debt management plan would even be considered. Check that the company providing the debt management plan is licensed by the Office of Fair Trading because it should be crystal clear as to exactly how much the plan costs, the monthly payments and how long you will have to pay it.
It’s also worth considering asking about what may happen if you were to miss any of the plan’s monthly payments. Before committing to any of these plans, you really do need to take advice from debt experts to check that it’s the right choice for you.