Debt Resources > Debt Solutions > Debt Management

What is debt management?
Debt Management is an informal arrangement between you and your creditors to repay your debts at a pace that suites you. If you have taken out too much credit and are struggling to meet your repayments every month, a Debt Management Plan may be the right debt solution for you. You can reduce you overall monthly repayment down by as much as 75%, i.e. if you current monthly outgoings to your unsecured debts are, lets say, £750, this can be reduced to a more suitable figure of around £200. Interest and charges are frozen the majority of the time with a Debt Management Plan allowing you to repay the debt without accruing further interest.

Why take out a Debt Management Plan?
Debt Management is ideally suited to people who have struggle to meet their minimum repayments each month. If you have problems repaying your debts it is advised you seek assistance with your finances as soon as possible. Failure to do so could result in serious consequences i.e. CCJ’s (County Court Judgments) been issued against you, bailiffs knocking at your door and in severe cases, Bankruptcy. This could also affect you ability to obtain further credit in the future.

What is the process?
Contact a suitable Debt Management Company, preferably one registered with the Office of Fair Trading to handle the case for you. You will have to provide details to them regarding your income, expenditure and the total amount owed to each creditor. From this information they will then calculate a reduced amount for you to repay. Once you have signed the relevant paperwork and returned to the Debt Management Company they will then contact your creditors and set new terms and conditions in place on your behalf.

Are Debt Management Companies ethical?
There has been a lot of bad press recently regarding Debt Management Companies as the Financial Help industry is still unregulated which basically means you don’t need to be qualified to work in the debt management. Be sure to check the company out thoroughly before signing any agreement and don’t be afraid to ask questions. Be sure to check out our ‘How not to get conned by a Debt Management Company’ page before contacting any.

What is the criteria?
This varies depending on the company but the basic criteria is as follows;

• You must have a minimum £2,000 in unsecured debt
• You must have a minimum of 2 creditors
• You must be able to afford at least £100 towards you debts each month
• You must be struggling to meet you repayments
• You can be employed or unemployed (if unemployed, you must be able to afford £100 out of you benefits towards your debts)

What debts can I include?
Any unsecured debts can be included, i.e. Credit cards or loans. Debt that’s cannot be included are;

• Property leases
• Council Tax arrears
• Student Loan repayments
• Secured Loans
• Hire Purchase Agreements
• CSA / Maintenance arrears

Will I still get contact from my creditors?
It is possible you may receive creditor contact in the initial stages of the plan being setup but this usually dies off once the new arrangements are in place and the creditors will deal directly with the Debt Management Company.

Is there a fee involved?
There is usually a setup and monthly fee involved but it depends on the company. Most Debt Management Companies will keep the first 2 payments you make to them as setup fees an then take a percentage every month of your payment (usually between 15-20%). If you do decide to take out a Debt Management Plan remember to shop around before you sign up with any to ensure you are getting the best deal. You can also try a free service or a government funded charity service if you do not want to pay any fees.

How long will it take to pay off all my debts?
This depends on a few factors, what your total debt is, the amount you are repaying on you plan and the fees (if any) charged from the Debt Management Company. Most plans average from as little as 2 years to 12 years. The bonus with Debt Management is that the interest and charges are frozen the majority of the time which enables you to repay the debt faster. If you were to repay the debt with the interest and charges still being added it would most probably take you the rest of you life to repay!

Will it affect my credit rating?
You credit rating will be affected whilst on a Debt Management Plan until you have repaid all the debt, then it will start to improve. The chances are that if you are struggling to repay your debts and have missed payments to your creditors it is likely your credit rating is already affected anyway so entering into a plan doesn’t really change much about your circumstances or ability to obtain further credit. Taking out a Plan will not affect your crediting rating as much as entering into an IVA or filing for bankruptcy as these are forms of insolvency. In these circumstances it would be logged on your credit file for up to 6 years and it will take some time to rebuild again once you have been discharged from your bankruptcy order.

Who do I speak to about a Debt Management Plan?
You can search on Google and find various companies offering debt solutions. Compare Debt Help offer a ‘Debt Help’ comparison service which based on the information you provide, will calculate the best solution for you and then advise on the most suitable company to help you. All the companies are registered with the Office of Fair Trading so you can be rest assured your case will be dealt with professionally.