Many people across the UK find themselves struggling with mounting debts, however, all debt problems are solvable with time and an effective plan of action. Becoming debt-free will not happen overnight, but the earlier you research debt management options the sooner you will tackle your issues.
Debt management vs. debt consolidation
Debt management helps individuals repay their non-priority debts in full, through a single smaller and more manageable monthly payment. Debt management plan providers will split your monthly payment and liaise with creditors to ensure your debts are eventually cleared.
In comparison, debt consolidation loans can be used to repay multiple debts immediately, with only the repayment for the debt consolidation loan required each month. This means your previous debts are settled and you may benefit from a lower interest on your debt consolidation loan repayments.
What is a manageable debt?
Manageable debts should be amounts which you can comfortably afford to repay for the duration of the agreement. If debt payments are not affordable, they are not manageable.
Is debt management bad for your credit?
With most debt management plans, you are repaying debts at a reduced rate, so your credit report is likely to show missed payments across your various accounts. This will have a negative impact on your credit score, however, when the plan is complete your debts will be marked as settled.
How to manage multiple debts?
If you are struggling to manage multiple debt payments, you can simplify the process by consolidating your debts. A single loan can be used to repay your various debts, which will make it easier to manage payment. Alternatively, a DMP provider can arrange a plan with creditors and is then responsible for making payments on your behalf.
How to manage your debt effectively?
Firstly, you need to calculate how much you owe and who you owe money to. Next, calculate your monthly budget and ensure your bills are paid, the disposable income can then be used to repay your debts. If you find it hard to manage multiple payments, there are options available such as debt consolidation loans.
How to manage bad debts?
Expensive debts which have a negative impact on your financial situation are often referred to as bad debts. If you are looking to pay off debts, you should begin by paying the bad debts with the largest interest rates.
Debt Management Plans
A debt management plan (DMP) can be used to repay debts in full such as credit cards, store cards, overdrafts, and unsecured personal loans. The DMP is arranged by a DMP provider, who will become responsible for managing payments to your creditors on your behalf.
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.
Don’t assume you will automatically be offered a debt 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 debt management plan by the debt 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
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 will 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.
Debt Consolidation Management
Debt consolidation management programmes offer people advice and help around debt management.
There are many debt consolidation management companies around, which offer people help and advice around debt management, reduction and how to create an affordable living budget. These companies can be a non-profit charity organisation, building society, banks and debt consolidation companies.
If the debt has gotten out of control and you have too many bills to keep on top of, then the aim of a debt consolidation programme is to help individuals to start getting on top of their debts and living within their means within a more affordable monthly debt payment.
For people struggling to make debt payments, a debt consolidation management plan is designed to create an agreement with your creditors to make a more affordable monthly payment each month.
How does a debt management plan work?
You simply make a single payment each month to the DMP provider who will divide the amount between the various creditors, although it is an informal agreement and the creditors may still take action to pursue recovery of the debt. The debts are eventually repaid in full, although repayment lengths will depend on how much you can afford to repay each month.
The Debt Management Company Will Negotiate With All Your Creditors To Provide A More Managed Payment Plan
How much you can pay tends to dominate the parameters of the debt consolidation management plan. For the total of how much is owed to each creditor, the individual will make a single payment and this will be proportioned out to each creditor.
There are non-profit companies like CCCS and the National Debtline who offer their services at no charge to establish a debt management programme for an individual. Otherwise, other companies may charge a fee.
The features of a debt consolidation programme are that, if it includes a loan, this will often be at a lower interest rate than the existing debt interest rate and it’s spread over a longer period of time, therefore it should lower your monthly payment.
It’s an interesting option to people because on top of this, there may also be a negotiation to freeze interest charges while the debt consolidation management plan is being put into place, therefore preventing more interest rates accruing during the period of time the negotiations takes by the debt consolidation company with your creditors.
It enables people to manage debts if they have spiralled out of control because it’s one payment every month towards the debt consolidation loan, not lots of different payments for different bills. This programme is purely for unsecured debts. You can’t include anything financed asset like a car or house.
Nobody has to agree to a debt consolidation plan, debtors don’t have to agree to be incorporated into the plan, they can just keep chasing payments and even take you to court in order to receive the payment.
However, having said all of this, it’s likely that creditors will listen to proposals made by debt consolidation companies because they would rather receive money via this plan than the potential of not having any at all if ultimately people can’t pay.
It doesn’t write-off your debts, it purely incorporates all debts into a more affordable debt consolidation management programme.
It helps to ease off calls, letters and constant chasing from debt collectors, but when taking out a debt consolidation loan, you must keep responsible for paying the full amount of all the debt.
It’s important to check that any company you use is licensed by the Office of Fair Trading. Let you know how much any up-front costs are in putting together the debt management plan.
You can only qualify for a debt consolidation management programme if you have enough money after all living costs are paid. If there’s only a little amount of spare money, then you may not be accepted into a debt consolidation programme. Therefore, it’s best to talk to professional counsellors to discuss other ways you could approach to tackle debt.
Are debt management programs good?
If you are feeling overwhelmed by unsecured debts, debt management programs can be beneficial. However, if you are struggling to repay priority debts, such as mortgage payments and utility bills, it is unlikely you will have the spare disposal income available to maintain debt management payments.
Can I have 2 debt management plans?
In theory, it would be possible to arrange two debt management plans, as there is no obligation to include your entire debts in a single plan. However, it would be simpler to arrange a single DMP with your chosen provider.
Can you get a mortgage after a debt management plan?
A DMP could have a negative impact on your credit rating whilst the plan is in place, however once finished your credit score will begin to improve, and your debts will be cleared. This means obtaining a mortgage may be possible.
Can a debt management plan stop bailiffs?
If debts are included in your debt management plan it is unlikely your creditors will continue to use bailiffs to collect the outstanding debt. However, DMPs are informal arrangements, so if you miss payments the creditors may begin collection proceedings.
Do debt management plans show on credit file?
If you arrange a DMP the creditors may add a DMP flag to your credit file, which will highlight that you have an arrangement in place. If a credit search is completed these will be visible on your credit file.
How to get out of a debt management plan?
You are under no legal obligation to continue with your debt management plan. If you decide to cancel your DMP you should contact your provider who will then inform your creditors that the agreement has ended. The various creditors will then be in contact with you to arrange collection of any remaining outstanding debts.
Debt management companies
There are hundreds of debt management companies operating in the UK, with some offering free services and others charging a fee. In general, the most well-known are the debt charities which do not charge for their services, such as StepChange, National Debtline and The Debt Advice Foundation.
What are the top-rated debt management companies?
In our opinion, the top-rated debt management companies in the UK are:
- StepChange – Excellent reviews with a 99% service rating.
- National Debtline – A great service with a simple online chat feature.
- PayPlan – offers free debt management and debt advice.
- Debt Advice Foundation – A telephone advice service designed to provide useful debt information.
- The Money Advice Service – A free and impartial service offered by the UK government.
Some debt management companies charge a fee for their services, meaning that a standard debt management plan from them could cost around £4,000.
Free advice on debt can be obtained from:
Are debt management companies a good idea?
If you feel like your debts are unmanageable, debt management companies can act as the middleman between you and those who you owe money to. They may be able to arrange a debt management plan which could make it easier for you to repay your debts in full, thanks to more manageable monthly repayments. However, some will charge fees and there is no guarantee that your creditors will be willing to accept the proposed plan, or that proceedings against you will stop. Every situation is different, so it is always worth obtaining impartial debt advice before agreeing to any debt management arrangements.
Can I change my debt management company?
Yes, debt management plans are not legally binding agreements, so you can switch to a new company at any time. However, it is important to remember that cancelling your DMP could mean that your creditors may not accept a new DMP proposal, especially if they feel there is a risk that you may not stick to the new agreement.
We are committed to helping our customers find the best way to become debt-free, based on their own specific circumstances. We offer competitive debt consolidation loans, which could help you pay off your outstanding debts. To find out more about our services, please contact our team today.
Ideas Of How To Manage Your Credit Card Spending
Did you know that each day during September 2012 more than 27.2 million card transactions were made? This equates to a total of £336 million. It’s worth noting that, reported within the same year, between July and September, around 1399 people were made redundant each day.
Credit card spending can mean that thousands of people could have unfortunately potentially defaulted on their credit card payment because they were faced with redundancy. UK building societies and banks wrote off £473 million in credit card debt over the third quarter of that year.
Take Precautionary Steps To Credit Card Debt
The obvious advice is not to allow credit card debt to mount up. If you can, cut up the card and cancel it. If you feel you need to lean on a credit card, then there are ways to try to control your level of spending and avoid debt.
If Christmas is a time you feel you need to treat family and friends, then it’s worth considering going to the New Year sales or steadily shopping for presents each month throughout the year, especially during seasonal sales. You could budget a certain amount each month towards buying clothing, Christmas cards, Christmas decorations and large items so you can breakdown the costs so you are comfortable in paying off the credit card statement within the monthly deadline. Aim not to have to pay any interest charges.
Consider A Pre-Paid Card Option To Manage Your Credit Card Spending
Did you know you could upload a credit card, so it’s all pre-paid, rather than take credit and pay after? Some cards have restrictions where you can’t spend any more than the amount uploaded on the card. This will make sure that you never overspend. You could even enter into the following month with money left over from this month! You can even not add any money to this card if that particular month is tight and helps you to focus on only buying essentials so you don’t overspend that month.
If you get on a roll with this method, it could mean that you can start to make regular savings rather than spending. You could then consider uploading an interest-paying savings account, rather than a pre-paid credit card. Your savings will earn a bit of interest – and could make you money. It’s always a good idea to try to put aside some extra money into a savings account for any unforeseen emergency spending on your home or car, etc.
Consider A Balance Transfer Or Interest-Free Option To Help Manage Credit Card Spending
It used to be very tricky to find a balance transfer offer for your credit card debt, but it seems to be a lot easier now. It seems that people with good credit could be eligible for zero per cent balance transfer deals.
You could be offered a short term, interest-free period with a low balance transfer fee or a zero per cent balance transfer of up to two years if you can pay for a higher balance transfer fee.
What we’re also seeing more low-interest introductory periods being offered.
Be Careful With Credit Card Statements
It’s predicted by credit card companies that some cardholders will not repay their balances before the interest-free period expires. Therefore, it’s advisable to get balances to zero as quickly as possible. If you still have money owed at the end of an interest-free period, then consider transferring it to another zero-interest balance transfer card.
Never miss a minimum payment because it means you may not qualify for an interest-free deal. It’s worth setting-up a direct debit for payments before each due date in order to prevent paying any interest rates.
Following this method, people can keep their credit ratings high and the opportunity to keep qualifying for the best deals. Just to remind you that credit cards should only be used when absolutely needed and not use as an excuse to overspend each month on luxury items, etc. Try to repay the balance of the card as soon as possible, don’t delay.
How To Manage Holiday Debt
It is estimated that over two million holidaymakers take out loans to help fund their summer vacation. Whether it be to help with covering the cost of travel, booking the hotel with the pool and sea view, or just spending when in the resort, various loan packages are taken out each summer to make sure your week in the sun isn’t compromised. The most common method of loan funding used by holidaymakers is a credit card and quite often using more than one at that to pay for various elements of the trip.
Now that you’re back on home soil, the pressures of life come sharply back into focus though. Holidays nearly always turn out to be slightly more expensive than you think, and juggling the loan repayments can feel quite overwhelming for some.
Planning on how to pay back the loans in a manageable way is key, and looking at the various repayment rates is a good place to start either to help prioritise repayments or to enable you to look at what suitable alternative deals might be available.
A 0% balance transfer card could be the solution for some, and there are some good deals currently available, but be careful not to apply for cards willy-nilly, as it could have a negative impact on your credit rating. You need to make sure that you clear the debts or shift again before the 0% ends otherwise rates will catch you out, so the higher the debt and the longer you need to clear it should be considered.
Another option, especially where there are several other loan repayments required, maybe to look at a debt consolidation loan, bringing all loans under one simple repayment spread over a longer period of time. This could help to repay some of the more expensive debts and leave you with a more manageable monthly payment that makes sure the memory of that relaxing holiday doesn’t get overtaken on life’s carousel by a suitcase full of debt worry.
Mistakes To Avoid When In Debt
Being in debt can be a horrible experience. There are ways out, of course, and our debt consolidation loans can help you.
First, you need to make sure you avoid these common mistakes:
Not making a payment plan
Paying off any debt is a good step, but it’s important to draw up a plan to set clear goals of which debts you want to pay off and when. This will help you to stay motivated and on target, and it means you can keep track of your progress throughout.
Not setting aside an emergency fund
It might seem counter-intuitive to set money aside when it could go towards paying off debts, but if you have no emergency fund then the likelihood is that you will end up in more debt further down the line when something breaks unexpectedly. Make space to save for emergencies alongside paying off your debts to prevent the need for further loans in the future.
Keeping The Same Spending Habits
It can be hard to change our behaviour. After all, most people stick to their habits. They watch the same TV shows, they go to the same cafes, they hang out with the same people. Unfortunately, if you’re in debt, you need to accept that your money habits must change.
Even smaller changes, such as going without your morning coffee, or going without your weekly takeaway can make a difference. If you don’t change your spending habits, your debt will get worse.
Not Creating A Budget
When you’ve got debt, it can be hard to sit down and actually look at your finances in detail. It’s natural to not want to confront an uncomfortable truth. However, an effective budget actually gives you power: it gives you a real understanding of exactly how much you’re spending each month, compared to how much you’re bringing in.
You’ll be able to work out what you need to change to start paying your debt off. This is one of those tasks that can be hard to do, but once you’ve designed a budget, you can start improving your situation without even having to think about it.
Not Prioritising Your Debt
Listen, it can be easy to coast by, only paying off your minimum debts each month and not thinking about how much you owe. But the truth is that by prioritising your debt and starting to focus on paying it off, you might be amazed at how different you feel. Debt can be emotionally exhausting; for the sake of your mental health, consider making paying it off your number one priority.
Trying to pay multiple debts at once
If you’ve got multiple different sources of debt, it can be tempting to focus on one at a time, paying a larger amount on each one each month. It’s actually far more effective to focus on paying one debt off completely as soon as you can, before moving onto the next one. This is also emotionally satisfying; you’ll get real momentum from paying debt off and want to continue.
Tips For Getting A Loan While In Debt
Getting a loan while in debt can be a difficult prospect, but if you want to get out of that debt then debt consolidation loans might be the perfect option for you. How do you apply though? How do you get a successful loan application when you’re already in debt? These three key tips on getting a loan while in debt will help you get the money you need.
1. Know How Much You Owe
The first step is to have the clearest possible understanding of what your debt looks like. Without this, you won’t be able to secure the right amount of money you need to clear your debts. Contact your lenders and try to get the most accurate possible picture of what you’re paying out every month – include any arrears and late fees in your total. There’s no way of fudging the numbers. Be as honest as possible and you will be able to understand what you need to borrow to pay off your debts.
2. Be As Honest As Possible
It can be tempting to try and minimise your debt when you apply for a loan to make your situation look a little better, but this is entirely counter-productive. Firstly it means you might not actually get enough money to properly clear your debts, which defeats the object of a debt consolidation loan. Secondly, there’s no way to cheat it, as financial lenders will look at independent sources to verify if what you have claimed in your application is accurate. If not, they will deny your loan.
3. Get Proactive And Apply Immediately
It can be a daunting prospect if you have looming debt to make a start, but you need to do it as soon as possible. The more charges you rack up, the deeper that pit of debt is going to get. The sooner you make your application, the sooner you can get the money you need to clear your debts and free up your finances. With one simple repayment to track, you can better manage your money.
Our debt consolidation loans can help you get a sense of real control over your finances. Get in touch to find out more.