The top 5 questions about debt management
With so much information available on debt management it can be quite confusing to try and understand exactly how debt management works. After all, many people have debts of one kind or another and continue to live their lives without needing any help managing their debts.
Credit can be a positive way to pay for the things you need in manageable amounts, providing you can afford the repayments. But what if something happens that means you can’t?
When would I need debt management?
A change of circumstances such as divorce, redundancy or illness can have a dramatic impact on your finances. The monthly payments on unsecured debts you successfully budgeted for in the past become impossible to meet, making it hard to keep up a mortgage or other secured loan. That’s where debt management comes in.
1. Why should lenders accept a debt management plan?
Your lenders would usually rather have smaller, regular payments you can maintain than force you into a more serious debt problem, or use expensive debt collection agencies.
By starting a debt management plan you’re demonstrating that you are committed to clearing your debts. Your lenders will also have the reassurance that a debt expert has worked out a repayment plan based on what you can reasonably afford.
2. Is debt management better than other debt solutions?
That depends on your situation. A debt management plan is ideal if you can afford lower payments over a longer period. Although this may increase the overall cost of your borrowing (in terms of interest), it gives you valuable breathing space to get your finances in order.
3. Do I have to go to court to get debt management?
No. Debt management is an informal agreement so there are no court proceedings, even if you already have CCJs or defaults. This also means that, should your circumstances change, your debt management company can try to renegotiate your monthly payments up or down so you’re still clearing your debt in the shortest possible time.
4. What if I can only afford to pay the interest on my debts?
Debt management companies generally try to agree a freeze in interest and charges so you’re tackling the debt itself instead of simply paying off the interest each month. Although lenders aren’t obliged to agree to this, they are more likely to accept if they can see it is the only way for you to repay what you owe.
5. I have a bad relationship with my lenders. Can debt management help?
Debt management companies act as the intermediary between you and your lenders so your Personal Finance Manager will conduct all negotiations with them on your behalf. You shouldn’t have to deal with any paperwork or worrying phone calls and you’ll be given a dedicated point of contact to talk to throughout your debt management plan.
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