A debt management plan
is a popular type of debt solution, whereby the debt management company will provide an agreement between you and your creditors. A debt management company will negotiate on your behalf with your creditors and will do their best to have the interest and charges which are applied to your account stopped or frozen. In essence, a debt management plan is an informal way to negotiate with your creditors and agree an affordable monthly payment. Why take out a debt management plan?
Most debt problems can be tackled with the use of either a Debt Management Plan (DMP) or an Individual Voluntary Arrangement (IVA). If you have debt problems and are unable to cope with the monthly payments, it is possible that without some form of assistance that you will not be able to fully repay these debts. In some cases the consequences can be serious and can include court or bailiff action.
Debt Management Plans have a number of advantages and disadvantages; it is useful to examine these before getting a debt management plan.
Pros of Debt Management Plans
- The debt management
company will assist you in negotiating with your creditors
- You will only pay what you can afford, based on your outgoings
- In many cases, the interest and charges on your debt are frozen ensuring that the debt won't increase
- The company will deal with correspondence from the creditors on your behalf
- You will pay one monthly sum to the debt management company who will distribute this to your creditors on your behalf
Cons of Debt Management Plans
- Because it isn't a legally binding agreement, creditors can pursue court action. However your debt management company will assist you if this were to occur
- If you are making one low monthly payment to tackle your debts, then it could take a substantial amount of time to repay your debt. The debt management company is likely to recommend an alternative solution if this occurs