How does debt management work?

If you are struggling with unmanageable debt, it can sometimes feel like there is no way out.

However, a debt management plan could help you to clear your debts at an affordable pace by reducing your monthly payments and making your debts manageable.

How does debt management work?
A debt management plan is an informal arrangement with your creditors in which you will make lower monthly payments towards your debts, based on how much you can afford each month after your essential costs have been considered.

Be aware that your lenders aren't obliged to accept any changes to your repayment terms. Plus, if you're not sticking to your original terms, this can show up on your credit report, which can make it harder and / or more expensive for you to get credit for the six years it stays on your report.

It's possible to negotiate a debt management plan on your own, but because this can be time-consuming, you may prefer to turn to a debt management company that will negotiate with your lenders on your behalf - and act as a point of contact between you and your lenders for the duration of the agreement.

Of course, repaying any debt more slowly can increase the overall cost, as the debt will be gathering interest for longer. However, lenders may agree to freeze interest on your debts, making it easier for you to pay them off.

Will I still be charged interest on my debts?
A debt management plan is an informal arrangement, and this will depend on which lenders you're dealing with, and what terms they agree to.

With some lenders, it will depend on how reasonable they think your repayment offer is - they may agree to freeze interest, or they may not, depending on whether they think you're doing all you can to reduce your balance.

Other lenders, however, will have policies about freezing interest which are unlikely to vary from case to case.

Is there anything else to consider?
Debt management plans have helped many people to clear their debts over the years, but they're not appropriate for people who can keep up with their monthly debt payments, or who don't think they'll be able to repay their debts within a reasonable period of time - if this is likely to take more than around five years, they may wish to learn more about IVAs (Individual Voluntary Arrangements) before making their minds up.