If you decide to take on a debt management plan
to sort out your financial problems then you will basically work with a debt counsellor to:
- Work out exactly what you owe and to whom.
- Establish how much money you can comfortably put towards repaying your debts every month by setting up a full budget that assesses the money you have coming in and the money you need to pay priority bills and living costs.
- Talk to creditors to get them to sign up to the plan.
- Ask creditors to freeze interest and even to wipe off some debts to make it easier to pay off what you owe.
- Give your debt management plan manager the agreed sum you have budgeted for every month which will then be divided between your creditors.
This kind of plan can be really useful if you find that you have not got enough money every month to pay for the essentials, to live on AND to meet your minimum debt repayment
commitments. For this reason, this is an extremely popular solution with UK consumers at the moment. It doesn’t come with the restrictions that other debt management solutions may have and your assets won’t be threatened as long as you stick with the program.
But, what a lot of people don’t realise is that a debt management plan is not actually a legally binding agreement. It is more of an informal arrangement. So, you can walk away from it at any time you like. On the other hand, so can your creditors and they don’t actually have to agree to it in the first place.
In most cases, however, especially if you are working with a reputable and experienced debt management plan specialist, you’ll find that most creditors will agree to commit to this kind of plan. Creditors do want their money back but, if you get into problems with your debts, they know that there is a very real chance that they will get no money back at all or very little of what you actually owe.
So, the majority of creditors will agree to your doing a plan. After all, the aim of this kind of solution is not to simply write off debts after a period of repayment as is the case with bankruptcy
and an IVA
. The aim here is that you will commit to repaying what you owe over a period of time until it is all sorted. Creditors who freeze interest may not get as much back as they would if you didn’t take this route but they will get most of their money back and this is good enough for most of them.
In some cases you may find that some of your creditors will agree to your debt management plan proposal and some won’t.
You can still do the plan but not all of your debts may be included into it if this happens. In most cases, even though your creditors can walk away from your plan at any time you will find that they agree to:
- Come to some sort of deal to freeze interest or reduce what you owe.
- Accept lower repayments every month than you are contractually obliged to pay them.
- Stop hassling you for debt repayment via letters or other legal measures that they might be taking now.
This commitment does work two ways, however, and you need to meet your end of the bargain to make sure that they do what you want. If you walk away from your debt management plan then you may find that all bets are off and they will revert back to your old terms and may start taking legal action again.
At the end of the day a debt management plan is an informal commitment that you make to your creditors. You are basically telling them here that you do want to commit to repaying what you owe but that you cannot do so under the current conditions. The fact that you are willing to take responsibility here is the key driver that will get many of your creditors on board. Committing to the plan yourself every month is the key driver that will keep them there.