When could a debt management plan help you manage your debts? It’s basically a new agreement with your unsecured lenders that could be extremely helpful – but not in every case.

If…

…you can afford to repay the money you owe in full but just need to make smaller payments per month as you can’t keep up with the payments you originally agreed to, a debt management plan could be a good idea.

…you can’t afford to repay the money in full, or you can afford your original monthly payments, a debt management plan won’t be appropriate.

So how does debt management actually work?

As mentioned above, it’s a new agreement with your unsecured lenders (credit card companies, banks that have given you an overdraft or unsecured loan, etc.). If you can’t afford your original payments, they may agree to accept smaller ones – as long as they can see it’s the most realistic way for you to repay what you owe them.

They might (again, they don’t have to) also agree to freeze interest and waive charges on your debts while you’re repaying them. If they don’t, though, bear in mind that making smaller monthly payments will mean you pay more in interest, since you’re repaying your debt more slowly, which means the interest has longer to accumulate.

If you choose to work with a debt management company, such as Debt Advice Now, they could handle a lot of the actual details for you. They could distribute payments to your lenders, for example, so you have just one payment to make per month. They could also handle things like letters and phone calls with your lenders on your behalf.

A debt management plan will (in most cases) continue until your unsecured debts have been repaid in full – or until you can start making your original payments again, if your circumstances improve and that means you can afford them.

Finally, note that making smaller payments per month – whether you actually enter a debt management plan or not – can affect your credit rating for six years, since it means you’re not sticking to the repayment agreements you originally signed up to.

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