What is a Debt Management Plan?

Credit crunch. Economic uncertainty. Double-dip recession. It’s hard to avoid the gloomy headlines about the state of our national debt and international financial crisis. But debt certainly isn’t confined to governments and nations. Levels of personal debt are rising higher than ever before as people struggle to meet increasing food and fuel prices when wages are being frozen.

 

Getting into debt is easy. Getting out of debt is a little trickier and takes real dedication and commitment from you.

 

Recognising that you need to rein in your finances is an important part in overcoming money troubles. Here is some great advice on how you can get your budget back on track…

 

How to get out of debt

 

If you feel like you can manage your debts alone, you will need to set some time aside and really look at your finances.

 

Firstly, write down your income – including any additional benefits you get. Then, get your most recent bank statements and write down all of your outgoings – this will include rent / mortgage, household bills, food etc, and make a list of your debts.

 

Secondly, you should also take into consideration non-monthly bills like your TV licence, gas bills, home telephone, car MOT / servicing, water rates, TV licence, etc…

 

Once you have all this information, you will be able to gain a clearer picture of your finances and how much of your income is allocated towards bills and general living expenses. Try to arrange all your direct debits to leave your account on the same day each month – this way you can ensure that the money left in your account is to spend on general living expenses.

 

You can then work out budgets and aim to put a little to one side to pay for those non-monthly bills mentioned above.

Make a repayment plan

 

The most effective ways to clear debts is to repay the debt with the highest interest / APR rates. By repaying more than the minimum amount, you’ll be repaying towards the actual debt – not just the interest accrued on it.

 

While you’re doing this, make sure that you do not continue to spend on credit cards and store cards – small purchases can soon add up so it’s best to avoid adding to your debts as much as possible. The Money Advice Service offers information on how you can reduce your borrowing if you need more advice on cutting back.

 

If you can transfer credit card balances to a card with low interest rates or 0%APR, then you should take full advantage of this and repay as much of your debts as you can before the introductory offer ends.

Professional help if you’re struggling with repayments

 

Getting in control of your finances takes a great deal of organisation, patience and rigorous budgeting. If you don’t feel like you can go it alone and would much prefer someone to take the stress and hassle off your shoulders, then you can get a professional Debt Management Plan and let an expert take care of all the arrangements for you.

What is a Debt Management Plan?

 

A Debt Management Plan is a flexible financial solution that enables you to repay your debts at a rate you can afford over a period of time that you’re comfortable with.

 

It is not legally binding, so you are not held into an agreement for a set period of time like you would be with other forms of debt help, such as an IVA. This means that when your financial situation improves, you can increase repayments and clear your debts in a shorter amount of time.

 

All of your unsecured debts such as personal loans and credit cards can all be consolidated into one Plan which means you only have to make one payment into the plan each month which will be distributed between your lenders – making it easier for you to stay in control of your finances.

 

A professional debt management company will normally provide help through undertaking the following:

  • A full financial review of your income, household expenditure and debt repayments
  • Carry out negotiations with lenders to arrange the Debt Management Plan
  • Negotiate a more affordable repayment plan and request that interest and charges on your accounts are frozen
  • Distribute payments to lenders included in the plan every month
  • Provide regular updates on repayments
  • Manage all communications with your lenders so you don’t have to
  • Provide ongoing financial help and support

 

What’s more; a Debt Management Plan isn’t a loan – so you do not need to complete a credit check to qualify or take out further credit to clear your debts.

 

Debt doesn’t need to consume your life – a little planning will help you beat those tough financial times. So whether you feel like you can go it alone or would much prefer the expertise of a professional company, at least you know there’s light at the end of the tunnel.

 

For more information on getting out of debt, download the free guide to Debt Management Plans.