There are a number of benefits to starting a Debt Management Plan:
- You agree a new, lower payment with your lenders that you know that you can afford – and is sustainable for you. This means that you have enough money each month to cover your priority living costs, such as your rent or mortgage, food, utilities, travel costs and so on.
- Providing you make your payments on time you should find that you receive less contact from your lenders, such as demand letters and calls.
- Although it isn’t guaranteed, in many cases your lenders may agree to stop adding interest and charges to what you owe. If they do, you will have the peace of mind of knowing that your debts are going down, not up.
- You’ll know that if you continue to make your payments you’ll repay all the debts included in your Plan in full.
However, as with any debt solution, there are a number of consequences that it‘s important to be aware of too:
- Reducing your repayments will affect your credit rating. It will be recorded on your credit file for at least six years. If you want to apply for credit in the future, you may find it hard to obtain during that period.
- As a Debt Management Plan is not a legally binding solution, your lenders may not agree to reduced repayments and may take, or continue to take, further action to collect your debt.
- Entering into a Debt Management Plan can mean you pay more in the long run. This is because lenders are not obliged to freeze interest and charges on what you owe, and the longer you take to pay off your balances, the more they build up.
- As you’ll be making reduced payments, it will probably take you longer to repay what you owe.