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Debt management is one of the ways borrowers can become debt free at an affordable rate. Debt management plans are available from various organisations.
Debt management plans are run differently by different organisations. The steps outlined below show just one of the ways a debt management plan can work.
- Firstly, when you contact a debt management organisation, you will speak to a debt adviser. They will ask you questions about your current financial situation so they can find out how much money you earn, how much you spend, how much money you owe, who you owe it to, and so on.
- After the initial questions, your debt adviser should have a good understanding of your current financial situation. Using this information, they should be able to work out how much you really can afford to repay to your creditors each month.
- Once this has been worked out, your debt adviser will speak to your creditors to negotiate a new, lower repayment rate. There is a good chance your creditors will agree to the new terms, if they believe this is their best chance of getting their money back.
- Providing the negotiations are a success, you will then begin paying one affordable monthly sum to your debt management organisation. This sum will be distributed amongst your creditors as agreed according to how much you owe each of them (this is known as a pro rata payment). It is important to remember that your debt management organisation may re-assess your situation on a regular basis to ensure you can still afford the repayments. You can always ask them to go back to your creditors and re-negotiate a change to your plan if your circumstances change and the agreed rate is no longer appropriate.
- If, for example, your income was to increase during the debt management plan, you can inform your debt management organisation and request that they negotiate a faster rate of repayment with your creditors. However, you should only consider this if you really can commit to repaying more than you are already doing.
For more information on debt management plans, you could contact a debt management organisation. They should be able to advise you on whether a debt management plan is suitable for you. |