DebtOptions

What is a Debt Management Plan?

A Debt Management Plan is an informal agreement between you and your creditors to repay a proportion of your debts at a particular rate over a certain period. For example, you might propose to pay back 70% of the total owed, at a rate of £50 per month. Debt Management Plans are arranged by a third party on your behalf. You make a monthly payment to them, and they pay the required amount to each of your creditors.

Is a Debt Management Plan right for you?

• A Debt Management Plan may be suitable if you:
• Have unsecured loans that you can’t afford to pay, or are struggling with debt problems
• Anticipate a change in circumstances that might mean you could not keep up repayments on your debts (for example, you feel that there is a chance you may be made redundant in the near future)
• Have very little disposable income left to repay debts, once your essential living expenses are taken into account
• Owe money to just one or two companies (you must owe at least three creditors in order to qualify for an IVA)
• Wish to avoid dealing with your creditors directly.

The benefits of Debt Management Plans

• Because they are informal arrangements, not legal agreements, they do not have to be approved by a county court. Therefore, they can be very quick and easy to set up.
• Debt Management Plans can be arranged to suit your personal circumstances. There are no restrictions in terms of the duration of the arrangement or the amount that you pay back. Some Debt Management Plans are set up to cover relatively short periods, while others may last for several years.
• You make one simple payment to your Debt Management Plan provider, and they distribute the money as required to your creditors. This makes it easy and simple to work out your monthly budget going forward. You also don’t need to deal directly with your creditors once the Debt Management Plan is in place.
• Debt Management Plans are much less intrusive than IVAs or bankruptcy. As long as you can make the payments, there will be no scrutiny of your finances.

What else you need to be aware of?

• A Debt Management Plan is an unofficial arrangement that has no legal standing. There is no legal protection for you against creditors, either while the agreement is being set up or afterwards.
• Creditors are free to accept, decline or simply ignore your proposal for a Debt Management Plan, as opposed to IVAs where they may be obliged to accept if the majority of creditors have already agreed.
• Because proposing a Debt Management Plan signals to creditors that you cannot afford to pay your debts in full, it may prompt them to begin legal proceedings or their own collection procedure.
• Debt Management Plans tend to be most useful when debtors are dealing with a small number of creditors – probably just one or two. If more creditors are involved, an IVA may be more appropriate.

Find out more about Debt Management Plans

To learn more and make an informed decision on whether a Debt Management Plan could be right for you, contact Debt Options, apply online or call us on 0800 234 3605 to talk through your individual situation in confidence with an expert advisor.