A debt management plan is a solution used to pay back unaffordable unsecured debts. It is typically managed by a third party (like a debt management company) who will be responsible for dealing with creditors for you as well as handling communication.
All of your unsecured debts - like credit and store cards will be paid for by the debt management company. You will pay them a single amount each month which they will distribute for you. Of course, your monthly expenditure and living costs will be taken into account and you will be left with enough money to live off whilst paying the maximum towards your debts.
There are a variety of benefits of using debt management, which include:
Make Lower Monthly Payments: The main benefit and reason people use a
debt management plan is that they are able to make lower month payments. You will only pay what you are able to afford as opposed to what your creditors may demand off you. Of course, it will take longer to repay your debts but you will have more breathing space each month.
Make a Single Monthly Payment: This is a benefit to many individuals as it enables them to get clear about their debts. Rather than making a multitude of payments at various times throughout the month a
debt management plan has the advantage of letting you making a single payment.
Letters/Calls Are Dealt With For You: A debt management company will deal with telephone calls and letters for you lifting the stress and annoyance of having to deal with demanding creditors.
A Stop on Interest and Charges: It's common for lenders to agree to a reduction or freeze on charges and interest when you have debt management plan. This is a key benefit as you focus on paying just the debt itself rather than the additional charges which have been added on. Remember, that this is not possible in every case and it is down to the lender to agree to it.
Flexible Arrangement: A debt management plan is often seen as a more flexible option than other more rigid debt solutions out there. You can change the amount you pay (move it up or down) if your circumstances change. So, for example if you start earning more money than you can pay more towards your debt. This differs from certain financial solutions which require you pay a certain amount every month. You can also stop a debt management plan at any point.
It's worth considering these points before getting a debt management plan. It's also worth remembering that a debt management plan can affect your credit rating, as you are paying your debt back at a different rate than originally set out.