What debt management solutions are available?
There are three ways by which a Debt Management Plan can be set up.
1. Involuntary Debt Management Plan: This occurs when your creditors file a ‘failure to pay’ complaint with the court. As per the demand of the county court you are asked to set up a Debt Management Plan.
2. Voluntary Debt Management Plan: This is when you directly approach your creditors for the setting up of a Debt Management Plan whereby you can pay a lower monthly amount over an extended period of time. It is important to point out that you are responsible for meeting the obligations of the plan. In case you fail to do so, your creditors can file for non-payment through the county court.
3. Mediation of a Debt Management Agency: These specialist agencies can contact your creditors and negotiate on your behalf for a lower monthly payment stretched over a longer time period. You make the monthly payment to the agency and it distributes it to your creditors on your behalf. Fees charged for services rendered vary from agency to agency.
How Debt Management Plans work?
A Debt Management Plan is an informal agreement that is negotiated between you and your creditors. You can do this on your own or take the help of a debt management company.
- Based on the assessment of your financial situation and debts, the agency will help you calculate how much you can comfortably afford to pay each month out of your surplus income.
- On reaching this agreement, the agency will approach your creditors to negotiate for reduced payments.
- Subject to the agreement of the creditors, you will then be required to make a single monthly payment to the agency. The payment will then be distributed to your creditors.
- If your financial status changes during the Debt Management Plan period you can contact the agency to renegotiate payments on your behalf.
- The plan will be reviewed at regular intervals and will continue until it ends or until you wish to voluntarily end the agreement.
Advantages of Debt Management
- Debt management can help you reduce your monthly repayments.
- It can provide you with breathing space, especially if your financial problems are temporary, for example, a short period of unemployment caused by recession.
Disadvantages of Debt Management
- Debt management is not legally binding so the creditors can continue to chase you.
- Since your repayment period is increased it takes a long time for the Debt Management Plan to complete,which can harm your credit rating.
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