One solution which may be suitable for people in debt could be to enter a debt management plan. This option will depend on your level of debt and how much you can afford to repay towards your debt each month.
If you would like to know if you are suitable for a debt management plan call us today on 0800 085 0226 and a debt advisor will be happy to help you.
Debt Management for Debt Problems
A Debt Management Plan is a debt solution which enables you to make an affordable monthly payment to your creditors via a debt management company. A Debt Management Plan means you only have to make one monthly payment to one company, who will distribute the money on your behalf. Your debt management plan will last until all of your debt is repaid.
People living in Scotland may wish to consider the Debt Arrangement Scheme as it offers legal protection and is a similar solution to Debt Management Plan.
Benefits of a Debt Management Plan
- You will pay a monthly manageable sum to one company and they will distribute the money to your creditors
- You may be able to get your interest and charges frozen
- A Debt Management Plan is an informal solution which means you are not tied in legally to the solution – you can usually leave a Debt Management Plan with a month’s notice
- You can increase or decrease payments if your salary changes
- You will be taking action to repay your debt and will be on the way to becoming free of your debt
Negatives of a Debt Management Plan
- Your creditors do not have to accept your proposal
- Any spare income will be used towards the debt solution meaning you won’t have much disposable income
- You have to repay all of the money you owe – you can’t get any written off
- If you owe more than £10,000 and it will take you longer than 7 years to clear your debt then a Debt Management Plan may not be the best solution for you
- Some Debt Management companies will charge a fee for administering your case, however we can point you in the direction of free Debt Management Plans, if that is the best solution for you
- Freezing interest and charges is not guaranteed and court action may continue
- Repaying small amounts over a longer time may lead to an increase in the total debt to be repaid
- Your credit rating will be affected for 6 years
Please note that only unsecured debt is included in a debt management plan so you may not be debt free at the end of the plan if you have a mortgage. You must also ensure you continue to pay priority debts such as rent and utility bills.
A for profit debt management company will charge you a fee for administering your case. A charity providing debt management plans will not charge you for the solution. This can save you, typically, between 10%-40% because all of your monthly contributions will go directly to your debt solution.
Debt to Family and Friends
Debt to family and friends can cause relationship problems but a survey has shown that more people are being forced to borrow money this way to survive.
As the cost of living increases and employment slowly begins to recover, people are turning to friends and family to help make ends meet.
The Aviva report has found that the average household in debt owes £2,000 to friends and family. This is the same amount as being borrowed on credit cards.
Why Do People Borrow From Friends and Family?
We’re experiencing a change in social beliefs surrounding debt. In the past, people often wouldn’t share their debt and money problems with anybody, including friends and family. However, as times get tougher and the availability of credit has been restricted, it’s a person’s nearest and dearest that are being asked to help.
The Aviva study compared 18,000 households and also found that the average family has £13,000 of unsecured debt – a rise from £9,000 just one year ago.
What To Do In Debt?
It’s vital for families in debt and struggling to repay their contractual payments to get advice. At Debt Support Trust our charity advisors have helped many people who owe money to friends and family and can provide tailored debt advice.
Our charity helps people deal with their debt problems. We do this by listening to your situation and by finding positive solutions to become debt free. There are always routes out of debt and we’ll help find the right one for you.
If you want our help, you can telephone 0800 085 0226 or complete an online debt test for online debt help.
Criteria to enter a Debt Management Plan
You must have at least two different creditors
You must have unsecured debt of at least £5,000
You must have a disposable income of £100 or above each month
We Have The Answers
To enter a debt management plan you must have a disposable income over £100 a month, unsecured debt of £5,000 and above and has two or more different creditors.
A debt management plan uses your disposable income (income minus expenditure) to make an affordable payment to your creditors each month.
A debt management plan is an informal agreement between you and your creditors where you agree to make a monthly contribution from your income towards your debts. Instead of having to pay several different creditors you would make the payment to one company who would distribute the funds to your creditors on your behalf.
Only your creditors can agree to freeze your interest and charges. A debt management company will attempt to get your interest and charges frozen to enable you to effectively repay your debt.
As the solution is informal your creditors can start or stop your charges and interest at any time.
You will not be making the agreed contracted payments to your creditors. As a result your credit rating is likely to be affected, making it difficult to obtain further credit.
There are an estimated 500,000 people in the UK in a Debt Management Plan.
As a Debt Management Plan is an informal arrangement you can cancel the agreement, usually with 1 months notice but your creditors may revoke any agreement to reduce/freeze interest, therefore increasing the amount you owe.
You must not take out credit (above £500) whilst in the debt solution as this breaches the terms of your agreement.