A debt management plan is a repayment programme whereby you agree to pay a set amount to your creditors on a monthly basis. The amount you pay each month is based on how much you can afford to pay. In order to enter into a debt management plan, you must have some income left over at the end of each month once all of your most essential bills have been paid. If you are uncertain about the amount you have left over each month then it could make sense to make a budget.
Drawing up a budget
A budget needs to take into account your total household income and your total household expenditure. When calculating your total expenditure, you need to take into account any payments that are made once a year (and divide them by 12), for example, car insurance payments if you pay for this annually. The best way to draw up a budget is to use a spreadsheet or one of the freely available budget calculators online.
Eligibility
In order to get on to such a plan, most providers stipulate that you must have debts of at least £5,000 and that you owe money to at least three separate creditors. You must also have money to spare at the end of each month.
Advantages of debt management plans
Once you have set up a debt management plan, you only have to make one monthly repayment, which then gets distributed to each of your creditors. This can be beneficial since you know exactly how much you have to pay each month and the amount you pay is fixed.
It is possible that some creditors will agree to freeze any interest and charges on your debt and in most circumstances they will cease contacting you requesting payment.
Utilising the services of a debt management provider should mean that you can draw on their knowledge and experience and get advice which is tailored to your circumstances.
Finally, at the end of the plan, your debts will be cleared and therefore you will be debt free.
Things to be aware of
As previously stated, it is important that you ensure that you have sufficient income to enable you to get onto a plan. Once you have established this, you also need to be aware that it is not a quick fix and will require a commitment from you to make the necessary payment each month until the debt has been cleared in full. Being in a debt management plan doesn’t mean that your debts will be written off, since you will still have an obligation to repay your creditors the amount you owe them.
Summary
A debt management plan is a structured way to repay your debts. Anyone can set up a debt management plan themselves and in doing so may save some of the administrative costs of using a provider. However, there are many benefits to using a provider and if you choose the right provider, you can call on their experience and expertise to negotiate the monthly repayments on your behalf. Not only this, you will be spared the hassle of dealing with your creditors on your own.
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