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However, like any debt solution, debt management is by no means an ‘easy option’. It is a significant financial commitment that will require you to pay as much as you can towards your debts every month – and you should only go ahead if you are sure that a debt management plan is right for you.

How debt management plans work

A debt management plan is an informal arrangement with your lenders, in which you’ll repay your debts in smaller monthly payments over a longer period of time. Your repayments will be based on how much you can afford once your other essential costs (such as mortgage payments and bills) have been covered.

However, note that repaying any debt more slowly can add to the overall cost, as the debt will be accruing interest for longer – although many people on a debt management plan find that they (or their debt management representative) can negotiate a freeze or reduction in interest and other charges. This prevents your debt from getting any bigger while you’re paying it back.

A debt management plan can be arranged by you alone, or through a professional debt management company. A lot of people prefer the convenience of using a debt management company due to the amount of time and effort that can be involved in setting up a plan. Another advantage is that a debt management company can look after the running of your debt management plan, and can act as a point of contact between you and your lenders while the plan is ongoing.

On the other hand, many debt management organisations will charge a fee for this – plus, some people are simply more comfortable clearing their debts without getting a third party involved.

Is debt management right for me?

It all depends on your personal circumstances. Debt management plans tend to be suitable for people with debt repayments that they cannot afford, but who could afford to repay the debt in full over a longer period of time.

It’s a big commitment that will significantly affect your credit rating, and it’s simply not worth entering into a debt management plan unless it is the most realistic way of you repaying your debts – and, in fact, your lenders will not accept it unless they can see this is the case, and that you simply can’t afford to keep up with the repayments you originally agreed to.

For more information on debt management plans and other debt solutions such as trust deeds, visit http://www.dacscotland.co.uk

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.