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Debt management plans – how they could help you

Many individuals in the UK are now juggling a range of debts with a number of creditors, and for many the struggle to keep up with repayments on debts eventually gets on top of them, resulting in missed and late repayments.

This in turn impacts heavily on their financial future, adversely affecting their credit rating and resulting in hassle from creditors. The situation is inevitably worse than ever at this time of year, with many people having grossly overspent over the Christmas period, finding themselves in a situation where they do not have enough money coming in each month to cover the debts that they have accrued.

Those that do have a high level of unsecured debt that they are struggling to keep up with have a number of solutions open to them, one of which is a debt management plan. There are a number of agencies that are able to set up debt management plans. You will find that some of these agencies charge a fee for arranging this, and these companies are best avoided because it means that less of your money goes towards paying off your debts. There are debt charities and agencies that do not take money for setting up these plans, and these are the ones you need to look for.

A debt management plan is where you make a set monthly repayment towards your debts, and this repayment is then distributed amongst your creditors based on how much you owe each one. You will continue with the plan until all of your debts have been cleared. The amount that you will pay each month is based on your income and outgoings, but is set at an amount that you can afford. An experienced debt management counsellor from the agency that you go through will determine how much you can afford to pay each month based on the information that you provide about your income and outgoings.

Often the agency that sets up the debt management plan is able to liase with your creditors and get them to reduce or freeze interest on your debts so that the problem does not escalate further. The good thing about these plans is that you do not have to worry about dealing with creditors yourself, and this comes as a relief to most people because it can be difficult, stressful, and embarrassing to deal with creditors that are hassling you for money. Trained staff members from the debt management agency will take the details of your creditors and will deal with them on your behalf.

There are many ways in which a debt management plan could help you if you have debts that you are going to struggle to repay over the long term. This includes:

  • Eliminating the need to deal with the stress of creditor hassle
  • Ensuring that you do not have court action taken against you by creditors
  • Helping to limit damage to your credit and your financial future
  • Reducing the amount of interest on your debts if creditors are agreeable
  • Reducing the amount that you have to pay out each month to an affordable level
  • Enabling you to get valuable support and advice from your debt management case officer

Tom Smith
18th January 2008

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