How Debt Management Could Help You

How Debt Management Could Help You

by David Redmond on 10 Jan, 2012

If you’re juggling multiple debts in the form of credit cards, overdrafts and personal loans, you may find it difficult to manage your monthly payments. If your lenders are chasing you for payments, it can be an added pressure to an already difficult situation.

Multiple debts can snowball if you don’t deal with them. Many people fall into the trap of accumulating more debt along the way because of bounced payment charges, unauthorised overdraft fees, and growing interest on debt they can no longer afford.

Everyone needs a certain amount of income for a certain standard of living. But what do you do if you can’t afford your essentials anymore because of unsecured debts and charges?

Debt management

Debt management is an informal agreement with your lenders in which your unsecured debt repayments are reduced to an affordable level. Lenders don’t have to agree to it, but if you can prove you intend to repay what you can afford and it is the best way for lenders to get back what is owed, they are more likely to accept a debt management plan.

On a debt management plan, whatever income you have left over after you have paid your essentials goes towards your unsecured debt. Because repayments are spread over a longer period, you may end up paying more in interest overall – unless your lenders agree to freeze the interest or charges. Also, lowering your repayments will have an impact on your credit record for at least three years.

If you ask a debt management company to manage your debt repayments, they can deal with your lenders too – which can be a relief, especially if you feel pressured by them.

A debt management company can also help if you’re not good with numbers or find budgeting too difficult. Simply inform a debt expert of your income and list the essentials you need to buy every month. With this information, a debt expert could work out how much you can afford to give to your lenders every month. They can approach your lenders on your behalf to see whether they will accept the lower payments.

If you got onto a debt management plan this way, you would make one monthly payment to the debt management company. They would divide it fairly between your lenders, based on how much you owed each of them and other factors. For example – if you were subject to a court order, that lender could be treated as a priority to help prevent more serious consequences.

Debts that aren’t dealt with have a tendency to get bigger and bigger. Debt management helps people in debt to get back in control of their finances.

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.