Why should I choose a debt management plan?

Many people find themselves struggling with debt every year - so if you`re in this situation, you`re not alone.

If your problems with debt are so bad that your unsecured debt repayments are simply unaffordable, one solution that could help you is a debt management plan. This is an informal arrangement with your lenders for reduced payments towards your unsecured debts, either until your circumstances improve or until the debts have been cleared.

This could make a real difference to your ability to repay your debts - but don`t forget that there are also drawbacks that could affect how suitable debt management is for someone in your situation.

How a debt management plan could help

Reducing your debt repayments to an affordable level

The main focus of a debt management plan is getting your debt repayments back down to a level you can afford. You`ll be expected to pay as much as you can after your other essential expenses have been accounted for, helping you ensure that all your costs are covered each month.

However, making smaller payments will mean repaying your debts takes longer, and you may pay more interest overall because of this.

Freezing interest and other charges

Your unsecured lenders don`t have to agree to this, but it`s common for interest and other charges to be frozen on a debt management plan. This means your debts can`t get any bigger, allowing you to repay them more quickly than you could if they were still growing.

Providing flexibility

Your circumstances may well change while your debt management plan is in progress. Thankfully, your debt management plan may be able to change to account for this - to an extent.

If your income falls slightly, you may be able to reduce how much you pay on your debt management plan accordingly. Similarly, if your income increases, you`ll be able to increase your payments, so you can repay your debts more quickly.

That said, if your circumstances change significantly, your debt management plan may no longer be viable - in which case you`d probably need to look at other more appropriate debt solutions.

Things to remember

A debt management plan can be a lot of help, but it`s not without its downsides. Missing your full repayments can have an effect on your credit rating, and you will be expected to pay as much as you can at all times.

Also remember that your lenders do not have to agree to a debt management plan. It`s entirely at their discretion, and they`re only likely to accept such an arrangement if they can see it`s the most realistic way for you to repay everything you owe.