Debt management: what you need to know

A debt management plan is an informal agreement between you and your unsecured lenders designed to help you repay your debts. If you can no longer make your monthly repayments as originally agreed, entering into debt management could give you a realistic and affordable way out of debt.

But how exactly does a debt management plan work? In simple terms, the debt management company you work with will ask your lenders to accept lower monthly payments towards your unsecured debts - worked out according to what you can afford after you've covered your essential expenses (mortgage/rent, food, utility bills, etc.).

If your lenders agree to this, you'll start making one reduced payment every month to the debt management company, who will then distribute the agreed amount amongst your unsecured lenders.

On accepting your new repayment plan, your unsecured lenders may also agree to freeze or reduce interest on your unsecured debts, so your debts won't continue to grow as you're repaying them. However, if your lenders don't agree to this, making lower monthly payments over a longer period could cost you a fair bit more overall, as you'll be repaying interest for longer too.

A debt management plan will stay on your credit file for six years, which can make getting credit difficult during this time.

How could a debt management plan help me?

If you can no longer afford to repay your unsecured debts as originally agreed, entering into a professional debt management plan could be the best way of tackling your debts.

A debt management plan could allow you to:

• Make one affordable payment every month that fits around your essential outgoings
• Get on top of your debts without taking out a new loan
• Let your debt management company deal with your lenders for you.

If you think a debt management plan could be the best way of repaying your debts, you should get professional debt advice to find out if it's the most suitable approach.

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