If you're struggling with multiple debts and are looking for a simple way to manage your finances, then an individually tailored Debt Management Plan could be just what you need.
A Debt Management Plan will help you manage all of your current debt by working out a monthly payment plan designed specifically to fit with your financial means.
By consolidating your payments into one, affordable monthly payment, you can relieve yourself of the pressures of having to pay back multiple debts at once. Generally, though not always, your creditors will freeze the interest and penalties on your debts so that your reducing your monthly payment doesn't have significant adverse effects in the long run on the amount you need to pay back.
With a DMP, you can take control of all of your current debt without needing to take out any more credit, as you would with, say, a debt consolidation loan
The main benefit of a Debt Management Plan is that it allows you to pay off all of your current debt much more easily and while still managing to maintain a normal standard of living. Generally, the length of time that you are in debt will increase, but the impact the debt has on your daily life will be reduced significantly. As mentioned above, another significant benefit of a Debt Management Plan is that it is one of the few debt solutions which does not require you to take out any more credit of any kind. While taking out another loan can be helpful, as with a Debt Consolidation Loan, many see a Debt Management Plan as a more prudent option, and would rather escape debt altogether than take out one loan to pay off others. While a Debt Management Plan and its conditions are not legally binding upon your creditors, they will still generally stop any interest or penalty charges while you are repaying your debt. This means that extending the amount of time you spend paying back what you owe should not put you at much (if at all) of a disadvantage in terms of the amount you actually pay back.
Customers join a debt management plan when they can no longer afford their contractual monthly payments to their creditors.
When a creditor does not receive the contractual payment they may put interest and charges on your debt. In the majority of cases DMP providers will negotiate with creditors to freeze any charges. However this cannot be guaranteed and in some cases creditors will continue adding to the debt.
By paying reduced payments to your creditors it will take you longer to repay your debt.
If you are looking to pay off multiple debts without drastically changing your lifestyle and would rather not take out an extra loan to do so, then applying for a Debt Management Plan could be right move for you.
In order to qualify for a Debt Management Plan, you must satisfy the following criteria:
- You must be indebted to at least two creditors
- This debt must be to the value of at least £2,500
- You must have a disposable income of at least £80
- Your disposable income must be lower than your contractual payment
Contact debt charity StepChange for help and advice.
Struggling with multiple debts and looking for a simple way to manage your finances.
You should still be able to apply for a Debt Management Plan if you have a bad credit rating, so long as you still have the appropriate level of income. Your Debt Management Plan will however most likely show up in your credit history for a minimum period of six years and be seen as a negative point by any potential future creditors, making it more difficult for you to get a loan or credit card in the future.
Our trusted debt management partners charges fees as explained in their Terms and Conditions. However, they do not charge for the initial call where they provide you with an assessment of your current position, advise on whether a debt solution would be suitable for you, and if so which product would be most appropriate.
It depends on the exact plan you choose. Debt management plans are not legally binding, but an individual voluntary arrangement, for example, will be.
There is no set limit to the number of debts a Debt Management Plan can cover, but the details of each case are worked out on a case by case basis. Therefore, if your income is vastly disproportionate to the amount you owe, you may have trouble getting a plan agreed upon.
Insolvency is the state of being unable to pay off any outstanding debts that you may have or, alternatively, the state of having liabilities that are worth more than your total assets.
There are various different ways of declaring insolvency but bankruptcy is probably the most well known.
Bankruptcy is a rather severe form of insolvency that should be treated as a last resort. It is essentially a declaration that you are unable to pay back all of your existing unsecured debts (i.e. debts that are not secured against any of your assets such as credit card debts, rather than something like a mortgage that is secured against your home).
Bankruptcy can be declared voluntarily, or you can be forced to declare bankruptcy by a particularly aggressive creditor (or creditors).
Once bankruptcy has been declared, responsibility of your relevant assets, as well as the responsibility of communication with your creditors, will be taken on by a trustee; either an official receiver or an insolvency practitioner.
While you are bankrupt, you will not be able to work as CEO or director of a company, or manage any business without first letting those you do business with know that you are bankrupt.
While you are bankrupt, you will not be able to borrow more than £500 without first informing the creditor of your bankruptcy.
You will also not be able to take out a credit card until you are discharged from your bankruptcy order.
Even once you are discharged, you will find it harder to use any form of credit while the bankruptcy order is still noted on your credit report. In such cases, you should consider taking out a specially designed credit building credit card that will allow you to steadily improve your credit score over time.
An individual voluntary arrangement, or IVA, is a form of insolvency that amounts to a legally binding agreement between you and your creditors, via an insolvency practitioner, involving a set repayment plan.
An IVA involves settling as much as possible of your unsecured debt by extending the payment term, and reducing the monthly payments.
You agree an amount to pay each month, which is then divided up among your creditors.
Each IVA case will be managed by an insolvency practitioner, whose responsibility it is to help work out the exact payment plan, to manage the distribution of the payments themselves and to take charge of any liaison with your creditors. Once the IVA is in place, your creditors are no longer permitted to contact you or harass you regarding your payments
Debt is a problem that most of us will find ourselves facing at least once in our lives.
But don't worry, with our comprehensive section of guides on debt solutions, you'll be able to find all of the information you need to get debt free right away
The Money Advice Service offer free and independent debt advice, find out about more options here