A Debt Management Plan is an informal arrangement between a person in debt and their creditors.
The Debt Management Plan enables the person to reduce repayments to their debts to a more affordable level when financial difficulties arise.
Whilst this will inevitably increase the repayment term of the debt, it does offer respite from unaffordable debt repayments which will be of great value to those whose debt problem is short term.
When administered correctly, Debt Management Plans can be extremely helpful in dealing with a debt problem, however, it is important to be aware of the potential pitfalls.
Creditors are not obliged to accept the repayments being offered through the Debt Management Plan. They are within their rights, if they wish, to take recovery action for the outstanding debt which could, in the extreme, lead to bankruptcy. This can have a significant impact on you if you are a homeowner.
Furthermore, there are no guarantees that creditors will freeze interest and stop making late payment charges just because you have requested through the Debt Management Plan.
Advantage Of A Debt Management Plan
- making one regular monthly payment allows you better control over your finances
- your creditors may agree to freeze interest and charges on your debt and may stop other action like taking you to court (although they don’t have to)
- peace of mind – in many cases, you will no longer be contacted by your creditors or debt collectors
- if you finish the plan, your unsecured debts will be cleared
Disadvantages Of A Debt Management Plan
- your debts must be repaid in full – they will not be written off
- creditors don’t have to enter into a debt management plan and may still contact you asking for immediate repayment
- mortgages and other ‘secured’ debts are not covered by a debt management plan
AFA Insolvency Ltd are not able to offer a Debt Management as a financial solution, However you can get free and impartial advice from Money Helper.
