What is debt management?
August 21st, 2008 | by Lynn Connelly |A debt management plan is different to an IVA or bankruptcy in that it is designed to help you make payments that you can both afford and sustain to your existing creditors. Unlike IVAs or bankruptcy, there is no risk to your home or other assets.
There are a number of agencies who will help you manage your debt completely free of charge, for example, www.debtadvicebureau.org.uk or your local citizen’s advice bureau could help.
Debt management deals only with unsecured debt so any secured debts you might have – such as your mortgage, second mortgage or any loan that was taken out using your property as collateral – will be excluded from the debt management plan.
Your creditors will be paid a percentage of what is considered to be your disposable monthly income, which is the money leftover after your living expenses and payments to your secured debts are paid.
How is a Debt Management Plan arranged?
1. An assessment of your financial situation will be carried out. Your advisor will need to know all your financial details such as your income and expenditure, who you owe money to and how much you owe them.
2. The advisor then makes a ‘Financial Statement’ which they use as a guide when working out how much you can pay each creditor.
3. Your creditors are then approached by the advisor and asked to accept a reduced payment. In most cases, lenders are happy to agree the repayment figure offered as they realise that they may not otherwise get any money back.
4. You will then make one monthly payment that totals the sum offered to all your creditors. It is then distributed to the creditors via the agency dealing with your plan.
5. For the duration of your plan, you’ll have a case officer who you can contact if you experience any problems with making your repayments.
6. The plan will be reviewed at regular intervals to see that it continues to reflect your financial circumstances.
7. The plan will be in place until your debts are cleared or until you voluntarily end the arrangement. The most common reason for ending the plan is if you have some improvement to your income or circumstances which mean you can start paying the creditors back yourself and therefore increase the payments.