What is debt management?

If you are struggling with your unsecured debts, you may be able to repay them through a debt management plan.

By negotiating with your creditors and asking them to accept lower monthly payments, you can repay your debt at an affordable rate, making sure you have enough money left to one side each month to cover your essential day-to-day living expenses (food, utility bills, mortgage/rent payments, etc.).

However, you should bear in mind that debt management is not an ‘easy’ way out of debt. It is a significant financial commitment in which you’ll be required to pay as much as you can do towards your unsecured debts on a monthly basis. With this in mind, you should only enter a debt management plan if you are sure it is the most suitable option for you.

How does a debt management plan work?

Basically, debt management is an agreement between you and your unsecured lenders, in which you’ll repay your debts in smaller monthly payments over a longer timeframe.

The repayments you make each month will be based on an amount you can afford after your essential expenses have been covered.

It is important to understand that repaying a debt more slowly than you originally agreed can show up on your credit report, making it harder and/or more expensive to access further credit for the six years it stays there.

Plus, if you arrange to repay your debt over a longer timeframe, not only will you be in debt for longer, but you may end up paying more overall – because your debt will spend longer gathering interest.

However, you may be able to ask your creditors to reduce/freeze interest and other charges, which will prevent your debt from growing any more while you’re repaying it.