Loan Ranks

How a debt management plan works

In short, a debt management plan is a rearrangement of your unsecured debt repayments to suit your circumstances. As long as your unsecured lenders agree, your debt repayments will be reduced to a level you can afford, so you can be sure that you have the money for both your debts and your other essential commitments.

This can go on until your circumstances improve and you can start making your original payments again, or until your debts have been cleared.

Lenders will often freeze interest and other charges on a debt management plan, which stops the debt getting any bigger, and this means you can repay the debt more quickly than you could if it was still accruing interest.

But remember: if interest isn’t frozen, you’ll end up paying more in the long run. It’s also worth considering that repaying a debt more slowly will have an impact on your credit rating – since you’re not sticking to your original repayment agreements – so you should only go ahead if you’re certain it’s the right solution for you. If you’re unsure, ask a debt adviser about your options.

How much will I pay?

Your monthly payments on a debt management plan will be based on what you can afford after your other essential costs have been taken care of. So for example, if you have monthly earnings of £1,200 and your essential outgoings (not including unsecured debt repayments) come to £950, you’ll have £250 left to pay towards your debt management plan every month.

This will mean that you’re left with little (if any) cash for other purposes – but many people will agree that this is worthwhile if you have no other way of repaying your debts.