If you can no longer afford your unsecured debt repayments as agreed, it’s important to find an approach that can improve your situation as soon as possible. The longer your debts remain unpaid, the longer interest and other charges will have to build up, which could lead to your debts becoming even more difficult to regain control of.
Debt management is one possible approach you could take to repaying your debts at an affordable rate again. But, as with all debt solutions, the advantages come with some disadvantages that you should be aware of too.
What is a debt management plan?
A debt management plan is a debt solution designed to help people get back on top of their monthly repayments again if they can no longer afford them. It’s an informal agreement, so the courts aren’t involved, just the borrower and their lenders – and a debt management company as well, if the borrower decides that’s the best way to handle things.
If a debt management plan is considered the most suitable approach, your lenders would be asked to accept reduced monthly repayments you should confidently be able to make – as they’re worked out to be affordable after your essential monthly costs have been covered.
If your lenders agree to the plan, you’ll start making a single, affordable payment every month to the debt management company, who will distribute money among your lenders, until you’ve repaid your debts in full, or until an improvement in your circumstances allows you to start making your original payments once again.
If you’re looking for debt management in Scotland, speak to a professional debt adviser to find out if a debt management plan is appropriate.
What are the negative effects of a debt management plan?
A debt management plan could be an ideal way of repaying your unsecured lenders if you’re struggling to afford your monthly payments.
However, there are some ‘negatives’ that should be taken into account as well, before you make a decision.
As it’s a non-legally binding agreement, a debt management plan has an advantage in that the courts aren’t involved; it can be more flexible than some other debt solutions. On the other hand, it means your lenders are under no obligation to accept lower payments all the way through, until your debts have been paid off in full.
Also, as you’ll be making smaller payments, you’ll also be repaying your lenders over a longer period, which could end up costing you more overall (if your lenders don’t freeze/reduce interest and charges), as the interest you’ll have to repay will build up over that time too.
Finally, ‘breaking’ the terms of your original agreements (the ones you signed when you initially borrowed money) will affect your credit rating for six years, which may affect your ability to get further credit during this time. But since debt management could only be suitable if you can’t afford your payments as agreed, it’s quite likely that your credit record has been damaged already.