What is Debt Management?

Debt management is an informal arrangement with your unsecured creditors to repay your debts over a period of time, usually extending the amount of time over which the debt will be repaid. With debt management you can either negotiate with your creditors by yourself or seek out the services of a specialist Debt Management Company.

The creditors will be offered a Statement of Affairs (SOA). From this, your disposable income, as calculated by your Debt Management company, will be offered to the creditors and they will decide whether to accept this or not. Once accepted, you make regular payments to the debt management company which will distribute it amongst your creditors.

Debt management is an option for those who;-

• Have a short term cash flow problem and believe that their financial circumstances will change in the near future.
• Are unable or do not wish to take out any further loans or use their equity in their home.
• Want to remove the pressure from creditors.
• Want to pay all their debts but are struggling with their current repayment schedule.

The success of a debt management plan is dependent upon control of your spending and a commitment to paying off the debt. Use our free SOA to establish how much control you have over your spending and where you can cut down on spending.

Pros
• A Debt Management Plan (DMP) is flexible; if your circumstances change then your payments can change accordingly.
• The debt management company will deal with all correspondence from your creditors.
• You are displaying a responsible attitude towards your debts which may be looked upon favourably by future creditors.
• There should be no contracts with Debt Management Companies. If you are not happy with the service they provide, just walk away and make alternative arrangements.

Cons
• Unless otherwise negotiated, your interest repayments will mount up, leaving you with a large sum at the end of your repayment period.
• You will be breaking the terms of your credit agreements with your creditors.
• It may take a significant time to repay your debts.
• You may find it expensive to get credit in the future.
• This will not necessarily stop creditors from passing your case to a debt collection agency, issuing default noticies or seeking CCJ's.

All debt management companies must have a Consumer Credit Licence which is issued by the OFT. You can check this out by contacting the OFT.

Solvent
If you are solvent then you may wish to consider reviewing your spending. You should have a Debt Management Strategy in place which will help you plan your finances. Examine the costs involved with re-mortgaging or even secured loans.

Insolvent
Consider an IVA. The reality of paying off a large debt is daunting. Large debts hanging over your head may make you feel stressed. With an IVA or, in Scotland, a Protected Trust Deed, you can stop creditors from pestering you and clear all of your declared debts within a set time.

There are many companies who offer debt management advice. These companies can be classed into two categories, free and fee charging. The fee charging companies are independent of financial institutions whilst the free ones are supported by the financial institutions, i.e. your creditors.

When considering a debt management plan, it's worth pushing for a company who will work to freeze the interest accruing on your debts. Try not to pay too much attention to companies who promise to freeze interest, it's not their promise to make. The freezing of interest can only be sanctioned by your creditor. It's also worth making the point to debt management companies that if you do not get your interest frozen then you will go elsewhere. This will encourage them to negotiate harder with your creditors.

Points to note
• If you choose to go with a fee charging company, ask for a breakdown of their fees and try to negotiate a reduction.
• Some criticisms have been made of free debt management agencies, who may advise the Debt Management route when another solution is more suited to your needs.

It takes approximately 1 to 2 months to set up a debt management plan. This timescale can vary dependent on the number of creditors you have and how long it takes for them to agree to your proposed repayment schedule.

In entering a debt management agreement you are breaking the terms of your contract with the creditor. You are, however, showing a responsible attitude towards the payment of your debt. Put into context, if you are struggling with repaying your debts then there is a high likelihood that your credit rating will already be affected.

Who?
There are many debt management companies to choose from. They advertise on the internet and local newspapers. Be warned - service levels can vary hugely. Try to get a recommendation from someone you trust. Most of all, do your own research (DYOR) before committing to a debt management company.

How much?
Fees and free
The free companies which offer debt management are mainly charities or not-for-profit organisations sponsored by the financial institutions. Companies which charge for their service typically take an upfront fee the first month and then a management fee of 17.625%.

Complete our Statement of Affairs and get your finances back in control. Once you complete your SOA you'll find that you understand where the solution lies to your financial problems.

And remember - our forum is here to offer you help and advice whenever you need it.

Don't let your debts drive you down the highway of despair - take back the controls and get on the road to financial happiness.

The key to an effective debt management is work out exactly how much you owe and create a plan to clear that debt. Simple. Well sort of. Getting into debt is simple - e.g. by spending slightly more than you earn each month. So the obvious solution to your debt mountain would be to spend slightly less than you earn each month. Read the entire article about debt management strategy

So you have large debts with various creditors which are causing you a lot of stress and aggravation. You are worried about losing your house or your TV being taken away. What are your debt management options? Read more debt management options here.