Debt management application process explained

Thursday, 10 March 2011 10:56

If you are finding it impossible to manage your finances or have borrowed more than you can afford to pay back, then you may need a debt management plan.

In an ideal world you would want to repay all the money you have borrowed, but it may be that through circumstances beyond your control, you are not able to meet all your credit commitments.

Should you find yourself in that position, it is important to seek help with debt at the earliest possible opportunity.

An advisor will be able to help you assess the full extent of your debt problems and recommend a number of solutions.

One of these may be a debt management plan – an informal agreement with your creditors that will commit you to repaying a proportion of the money you owe over a set period, using a fixed monthly payment.

This type of agreement can be particularly helpful if you have unsecured loans you are struggling to repay, have large debts but only to one or two creditors, or even if you just find it difficult to stretch your income to cover both living expenses and credit payments.

They are also one of the most straightforward forms of debt help, as you will only need to make one payment per month and the application process is simple.

It begins with an advisor carrying out a thorough examination of your financial position, in order to establish the full amount you owe, how much disposable income you have after essential living costs and the sum you can afford to put towards debt repayments.

If the results of this analysis suggest a debt management plan is the right course of action, your advisor will help you draft the terms of the plan. This is then used as a basis to approach your creditors and ask them to agree to reduced repayments.

Creditors do not have to accept the terms of the plan, but if they do, you will then be able to make one affordable monthly payment to your debt management plan provider and they will distribute it to the companies you owe money to.

A debt management plan is likely to have a negative impact on your credit rating and you will have to pay a fee to arrange it, but it is likely to be less difficult to cope with than the effects of an individual voluntary arrangement or bankruptcy.



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