Last updated: 23/07/2020 | Estimated Reading Time: 4 minutes
Starting a debt management plan
If you are struggling with your level of debt and can't sustainably meet your repayments, you may want to consider starting a debt management plan. This guide will talk you through how to go about getting a debt management plan, which organisations exist that supply them and what to consider before starting one.
In This Guide:
- Step 1 - consider priority debts first
- Step 2 - work out why you want a debt management plan
- Step 3 - work out what you can afford
- Step 4 - think about whether you are willing to pay someone for a DMP
- Step 5 - choose a debt management plan supplier
Step 1 - consider priority debts first
Before you decide whether or not you want to start a debt management plan, you need to consider how you are going to be able to manage with your priority debts. Priority debts are loans in the form of things like mortgages, rent or council tax. If you don't think that you will be able to pay off your priority debts, you may want to start thinking about an alternative debt solution because these debts cannot be helped by a debt management plan.
Step 2 - work out why you want a debt management plan
One thing that you really need to think about before starting a debt management plan is what exactly you want to achieve with it. Debt management plans are designed for people who want to lower their monthly repayments to be more affordable. This is achieved by enlisting the service of a representative who will deal with any interaction you may have with your creditors for you. If you are somebody who does not fall into this category, you may want to think of an alternative solution. For example, if your aim is to pay off your debt as quickly as possible, you would be ill-suited to a debt management plan and would be better off pursuing another course of action.
Step 3 - work out what you can afford
One thing that you should definitely do before starting a debt management plan is work out a rough budget for yourself. It is important to be realistic when doing this, otherwise you may find yourself in a position where you are still unable to afford the new terms of your agreement with your lenders. Typically speaking a debt management plan company will work with you in order to ascertain exactly what it is you can afford to pay back each month, whilst still retaining a disposable income to pay for your day to day costs but it is still a good idea to think about this before you meet with such a party.
You should think about things such as your energy bills, how much you need for food, council tax and anything else that is necessary to your day to day life to continue unaffected. Once you have worked these costs out, you will be left with a sum that you can afford to go towards your monthly repayment of your "non-priority" debts. When this is completed you can then discuss with your supplier about whether or not you are going to present a reasonable offer to your creditors.
Step 4 - think about whether you are willing to pay someone for a DMP
One important thing to know about debt management plans is that you do not necessarily need to pay for somebody to arrange your debt management plan. Whilst there are many organisations who will charge you to set up a debt management plan, there are places that will not charge you at all.
If you decide to go with an organisation that charges you for the arrangement, you should factor those costs into any plans that you make regarding you financial plans or repayments.
Step 5 - choose a debt management plan supplier
There are several ways in which you can decide upon who has the best debt management plan service to offer. Consider getting in touch with Citizens Advice and asking them for recommendations or calling the national debt helpline. Alternatively, if you are currently receiving advice on your finances from a company, consider asking them for their opinion. You should make sure that you do your research and fully investigate each potential supplier. It is important not to get drawn in by successful advertising campaigns or flashy websites because these do not necessarily indicate the best supplier.