Benefits of a Debt Management Plan

Debt management has become a frequently used tool by people who are caught up in a trap of un-payable debt. It is a cheaper alternative than bankruptcy or sequestration (in Scotland) and relatively easy to put into place.

A debt management plan consists of adding up all your income and expenses and deciding how much you can spend in a month to pay off your debt. This is important, as you will make one payment to the debt management agency or the solicitor specialising in insolvency and they will distribute the money amongst you creditors. You need to be sure that you can make that payment every month.

Once you know how much you can put towards paying your debt, you can either decide to negotiate with your creditors directly or approach a debt management agency to do the negotiations on your behalf. There are several non profit agencies in the UK that will help you free of charge. Equally, there are many agencies that will help you for a fee. After the negotiations an Individual Voluntary Agreement (IVA) is drawn up and all your creditors must consent to it. If all of them don’t consent to the IVA, you cannot proceed with the process.

This is where working with an agency has its benefits. Creditors tend to look more favourably on suggestions and negotiations made by a credible agency than an individual. Once the proposal has been accepted, you now have a debt management plan in place and you will be expected to keep to the payment terms.

Why should you go into a debt management process? There are several benefits:

• The first benefit is that the regulated payments give you more control over your finances. You will also only pay what is within your means, so there is no undue hardship on you while paying the debt.
• When you enter the debt management process, your creditors may agree to stop all action that they have pending against you. They may also agree to no further interest being charged on the debt. It is important to note that they are not obliged to do this and may proceed anyhow.
• One of the primary benefits of using a debt management agent is that you will no longer need to deal with your creditors. They have to communicate with the agent on any of the issues regarding your debt management plan. The same goes for debt collectors. Should they contact you, you can refer them to your agent.
• You have the reassurance that when you’ve completed your payment time (e.g. 60 months) you will not be obliged to pay anything more. The rest of your unsecured debt will be written off. In some cases it can be up to 60% of the debt.

When you’re in financial trouble, it is wise to get help sooner rather than later. With a good debt management plan you can avoid a lot of unpleasantness.