DEBT GUIDE – Clearing Debt with a Debt Management Plan

DEBT GUIDE – Clearing Debt with a Debt Management Plan image url

by David Redmond on 6 Jul, 2012

Struggling with the burden of debt can be exhausting, constantly juggling finances and dealing with demands from creditors.

It is little wonder then that an increasing number of people consider Bankruptcy as a way out, despite the long term consequences such a drastic measure could have. The latest figures revealed by Credit Action showed that as many as 314 people enter into either insolvency or Bankruptcy every day, a staggeringly high number.

However, if you are seriously contemplating Bankruptcy as a solution for your debt problems, take a moment to consider whether a Debt Management Plan would offer you a viable alternative.

The credit crunch has left many households all over the country struggling to pay their bills and whilst repayments may have been affordable before, the rising cost of living or a drop in earnings can make paying everything off impossible.

If you are struggling to meet current repayments, a Debt Management Plan could be the right solution for you. An expert will help you go through your finances to ascertain what essential living expenses you have and how much these cost every month. This would typically include expenditure such as mortgage or rent, council tax, utility bills, travel, food and any other living costs. No unsecured debt repayments are included in the calculation.

The amount of money you have left over is what the creditors will receive – even though this may be substantially lower than what they are asking you to pay.

A professional debt company, such as Baines and Ernst, will then contact creditors on your behalf and negotiate a reduced payment rate, as well as requesting interest and charges to be frozen. Creditors are not legally obliged to agree but according to statistics from Baines and Ernst, around 84% will agree to waive their right to add further interest and charges.

From this point onwards, you will no longer have the burden of communicating with your creditors, as all correspondence should go via the company handling your Debt Management Plan. This can feel like a huge relief, as constantly having to deal with telephone calls and letters demanding money can be overwhelming at times.

The other convenience of a Debt Management Plan is that you no longer have to juggle several different repayments every month. You only have to make one monthly payment for the total amount and the agreed sums will be distributed amongst your creditors.

With a Debt Management Plan, you will not write off debt, you will repay what you owe at a more affordable rate over a period of time that’s suitable for you. The duration of a Debt Management Plan depends on how much you can afford to repay and how much you owe. However the flexibility of a Plan means that if you can afford to repay more when your finances improve, you can. This will help you to repay your debts in a shorter amount of time.

If you do proceed with a Debt Management Plan, it is worth noting that your credit rating will be affected in the medium to long term and you will find it difficult to get credit in the future.
A Debt Management Plan is suitable for those with at least two different creditors, with a total outstanding balance of £2,000 or more. Proof of income will be necessary to set up the agreement.

Baines & Ernst has launched their first of debt guides: Baines & Ernst’s Guide to Debt Management Plans provides a clear overview of what a Debt Management Plan is and how it works, plus information on other debt help services including Individual Voluntary Arrangements, Debt Relief Orders, Bankruptcy, Protected Trust Deeds and Sequestration.

No-one likes to be in debt, but a Debt Management Plan can provide the extra breathing room you need to get back on your feet again.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.