How do you set up a debt management plan?

If you’re struggling to keep on top of your unsecured debt repayments, you’ll need to find a realistic way of paying back what you owe.

If you’re in this situation, a debt management plan could be the best way of lowering your repayments and regaining control of your unsecured debts.

Let’s look at how you could set up a debt management plan.

What is a debt management plan?

A debt management plan is an informal agreement with your unsecured lenders. It’s designed to reduce your monthly repayments to an affordable level, taking all your basic living costs into consideration, so you can get back on top of your unsecured debts at an affordable rate.

A debt management plan could only be an option if you can no longer afford your agreed monthly repayments, but can still afford to repay the debts in full within a reasonable period of time. You can find out more about debt management here.

How could I set up a debt management plan?

There are two main ways to set a debt management plan up. If you’re happy to do so, you could set up a debt management plan on your own, by getting in contact directly with your lenders.

On the other hand, you may prefer the professional help of a debt management company, who could do all the negotiating for you. They could ask your lenders to agree to lower monthly repayments, and if your lenders agree to a debt management plan, the organisation will deal with your payments, as well as any phone calls or letters from your lenders, on your behalf.

Once a debt management plan is agreed, you would start making single monthly payments directly to the debt management company you’re working with – and they’d make sure your lenders receive their agreed payments.

Bear in mind that making smaller repayments could cost you more overall in interest, and will damage your credit rating for six years – though if you need to enter a debt management plan, it’s likely that your credit record will have already been affected.