Get out of debt with a debt management plan

12 May 2009

If you`re facing financial problems and can`t afford to keep up with your monthly repayments, you may be able to get out of debt with a debt management plan.

Joining a debt management plan means asking debt specialists to talk to your lenders on your behalf. They`ll explain that your circumstances have changed and that you can no longer afford to make the monthly payments you originally agreed to.

Get out of debt at an affordable rate

Basically, debt management works by asking your lenders to consider different ways they could help you repay those debts. After all, it`s in everyone`s interests to find a way you can clear your debt an a rate your can afford.

They may, for instance, agree to accept lower monthly payments. You`d work with your debt management representative to figure out what you could realistically afford to put towards your non-priority debts (credit cards, store cards, personal loans, etc.) per month, after you`ve taken your essential expenditure (rent/mortgage, utility bills, food, etc.) into account.

Your lenders may agree to this, as long as they can see that you`re cutting back on all non-essential spending to maximise the amount you`re paying into your debt management plan, to be distributed among your lenders on a pro rata basis (i.e. depending on how much you owe each lender).

Stop your debts escalating

Of course, repaying any debt more slowly may increase the overall cost of that debt, as it means it`ll accrue interest for longer. However, lenders may also agree to reduce the interest rate they`re charging on the debt, or even freeze interest altogether. This can make a big difference to the amount you pay in total - even if the debt management organisation is charging a fee for the service it`s providing.

Also, please note that lenders may issue a default notice if you start making smaller payments to your unsecured debts, as this will mean you`ve not stuck to the original terms of your repayment agreement. This will have a negative impact on your credit rating, which can make it harder to obtain credit for the six years it stays on your credit report.

Stay on top of your priority debts

Since it works by giving your lenders a portion of your disposable income (the money that isn`t required to pay for your essential expenses), a debt management plan should help you make sure you have the money you need to pay the mortgage/rent and other important monthly bills.

In other words, debt management can be a good way to get out of debt without falling behind on your mortgage / rent payments, your utility bills, etc.

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