Will I repay all of my debts on a debt management plan?
A debt management plan is a new plan for repaying your unsecured debts in a different way. If you can’t afford your existing debt repayments, a debt management plan can (assuming your unsecured lenders agree to it) make your debt payments affordable again, while helping you ensure that all your other essential costs are also met.
You will still repay your debts in full on a debt management plan, but you’ll benefit from the fact that your lenders are accepting lower debt repayments, which will give you a chance to repay what you owe at a pace you can manage.
But there are also downsides to a debt management plan, and you’ll need to consider these before you can establish whether it’s the right debt solution for you.
How debt management works
Before we start, it’s important to understand that your lenders don’t have to accept a debt management plan. But if you’re really struggling and you can’t afford to repay your debts any other way, it’s quite possible that your lenders will accept it.
A debt management plan is an informal arrangement with your lenders. You’ll make reduced monthly payments towards your debts, based on how much you can afford after your other essential expenses have been paid for.
So for example, let’s imagine you should be making monthly repayments of £300 – but you can only afford £200 a month. A debt management plan could bring your repayments down to £200, which means you wouldn’t have to use up money you should be putting aside for things like your mortgage/rent, utility bills and food.
Repaying your debt in smaller amounts would mean it takes longer to pay off, however, and that would mean there’s more time for your debt to accrue interest – although it’s common for lenders to freeze or reduce interest and other charges on a debt management plan, which can stop the debt from growing.
Repaying a debt more slowly can also affect your credit rating, as it means you’re not sticking to the terms of your original repayment agreement.
Is it right for me?
Your lenders will only accept a debt management plan if they can see that you need it. You’ll have to demonstrate that you can’t afford your debt repayments, but can still afford to repay your debt in full over time. You’ll also need to be able to commit to regular monthly payments.
If you can’t, you’ll need to consider the other options. Always speak with an expert debt adviser before you make any firm decisions.
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