What is a Debt Management Plan?

If you are in a position where you feel your debts are growing out of control, you can approach a commercial debt management company for help. A debt management company will help you organise your debts, usually by devising a repayment plan tailored to suit your needs. Your individual debt management repayment plan will take into account how much you earn as your salary and your essential expenditure. Taking these factors into consideration, they will work out a monthly amount that you can afford to repay to clear your debts over a given period of time.

Bear in mind, however, that you will only be eligible for a debt management plan if you have taken out an unsecured loan such as credit card loans, store card loans and other personal loans. Unfortunately, if you have a secured loan including your mortgage, you will not be able to use a debt management plan to help resolve your debt problems.

A good debt management plan will be realistic and achievable. In order for your debt management plan to work, you in turn have to work hard to keep within the financial budgets set for you.

Advantages of a Debt Management Plan

In the majority of cases, debt management companies will recommend consolidating all your debts into one large debt to make it more manageable. This is hugely beneficial for you as a debtor, as this generally means that you will be able to consolidate all of your repayments into one low monthly payment. The affordable monthly payments will hopefully mean that you can comfortably and consistently pay the amount each month as required, thereby avoiding any late payment fees.

This will immediately reduce your stress levels as your debts will appear much easier to cope with. As long as you can stick to your budget, you will feel relieved that you are working towards slowly but surely clearing your debts.

A good debt management plan will help you avoid being declared a bankrupt.

Disadvantages of a Debt Management Plan

One of the main disadvantages of a debt management plan is that you will be charged more interest in the long run to benefit from the reduced monthly repayments. This generally means that, if you successfully complete your debt management plan, you will have in fact paid back more in total than you originally expected to repay.

Also, be prepared that some of your creditors may not accept your debt management plan. They are not legally obliged to do so and may therefore carry on charging you interest on your mounting debts.

You will have to be extremely disciplined once you have accepted your debt management plan. You have to stick strictly to a set monthly budget and make repayments on time. If you are late, you can lose all the benefits of the plan including the lower interest rates.

The bottom line remains that a debt management plan is still only a plan - you still have the heavy responsibility of repaying each and every one of your unpaid debts.