A debt management plan is a debt solution that is best suited for those with more modest financial difficulties. Identifying the level of debt at which point it is right to pursue a debt management plan is fundamental. Those with serious debts should consider an Individual Voluntary Arrangement or personal bankruptcy.
What is a Debt Management Plan?
The objective of any debt management plan is to improve affordability for those with financial difficulties. This is achieved by reducing the amount paid on personal debts, freezing interest and further charges and simplifying matters, meaning that only a single monthly payment is needed.
Why Choose a Debt Management Plan?
A debt management plan is a non legally binding debt solution. This means that any payments agreed under a debt management plan can be changed at any time by either party. Payments into this debt solution start from as little as a £100 per month, which is vastly more affordable for many struggling to make repayments on unsecured loans and credit card debt.
Debt management plans help prevent creditor harassment as all dealings with creditors are taken care of by a personal account manager. This helps to alleviate many of the pressures associated with having financial difficulties. Whilst no debt solution improves a personal credit rating, most are already impaired.
Who is a Debt Management Plan Suitable For?
A debt management plan is only suitable for those with more modest levels of personal debt. This is because the more modest payments into a debt management plan only erode debt very slowly. However, it could be used as a stop-gap for those considering other legally binding debt solutions, such as an Individual Voluntary Arrangement.
Those that still have good credit may prefer to get a debt consolidation loan. This can be preferable to a debt solution such as a debt management plan, because it doesn’t have a negative impact on a personal credit rating. It is normally only advisable to consolidate unsecured debt with an unsecured loan. Try to avoid homeowner loans if at all possible.
Dealing with Financial Difficulties and Serious Debts
Those with serious debts over £15,000 should consider an Individual Voluntary Arrangement or personal bankruptcy. The option chosen depends largely upon personal circumstances. Those who don’t own their own home or have a profession to protect are usually advised to declare personal bankruptcy.
A debt management plan is a great way of dealing with small, multiple debts as it prevents creditor harassment. Identifying the right debt solution is a very important decision so it is important to seek credit counselling before proceeding.