DebtOptions

Debt Management application process

The first step to creating an effective Debt Management Plan is a detailed and realistic analysis of your financial position. The aim of this analysis is to establish exactly how much you owe, how much money you have coming in and how much you spend each month on essential living expenses. This helps to determine your ‘disposable income’ – whatever is left over once all your basic living expenses and regular bills have been paid (mortgage/rent, food, travel costs/petrol, childcare, gas/electricity and so on).

Based on this analysis, you can determine how much you would be able to repay to your creditors each month. This is then shared out on a pro rata basis between your creditors, depending on how much you owe them. For example, if you owed one company £1,000 and another one £2,000, the second creditor would receive twice as much each month as the first once your Debt Management Plan was up and running.

At this stage, you should also work through all your debts and add up the total amount outstanding. Include all the debts you have, including unsecured loans, credit cards, store cards and amounts owed to friends and family. This is so you can gauge what proportion of your debts you are proposing to repay under your plan.

Proposing the Debt Management Plan to creditors

The information from your financial analysis is used to draft your actual Debt Management Plan. This sets out how much of your total debt you propose to repay, how much you will repay each month and how long the plan will last.

Once you have the drafted Debt Management Plan, you (or your advisor) can propose the plan to your creditors. Usually, people write a letter explaining why they cannot meet their contractual repayments, including an overview of all their debts, so creditors get the full picture of their financial situation. It’s worth explaining if and when your income might increase – for example, if you are on maternity leave and plan to return to work at some point in the future.

It’s important to remember that a Debt Management Plan is not a formal or legal arrangement with your creditors. They are under no obligation to accept it, or even acknowledge it. If they do ignore it, the situation is exactly as it was before.

Carrying out your Debt Management Plan

If your Debt Management Plan is accepted, you simply make the regular payments to your creditors as agreed. If you agreed your plan with a third party, you will make an all-in-one payment to them for distribution to your creditors. Once the plan is finished, your debts are discharged as agreed with your creditors.

Starting the process

To start the Debt Management Plan process or to simply get some impartial advice contact Debt Options, apply online or call us on 0800 234 3605.