If you have found yourself with a large amount of debt that you’re struggling to pay off, a debt management plan could be the answer for you. A debt management plan allows you to consolidate your debt and pay it all off in manageable chunks while only dealing with one company. A debt relief company can help you set up a debt management plan and can liaise with your lenders to make the process easy for you.
What is a debt management plan?
A debt management plan can be set up by a debt company, to help you pay off your debt in a more manageable way. They will start by taking all your outstanding debts and create a debt consolidation plan. This means putting all your debt into one bigger loan which you will pay off into one account every month. This saves you having to deal with multiple lenders and keeping up with multiple loans at once, meaning you’ll be more likely to keep up on repayments.
The debt company makes money by charging you a fee to deal with all of your lenders and simplify paying off your debts. In return for this fee, the company will usually negotiate a pay plan with your lenders and ask them to freeze the interest. So that instead of having to pay off large outstanding amounts that are still accruing interest, you can pay back a small chunk, like £5, every week or month. Keeping up with these small repayments will mean you’ll clear your debt over time.
You need to ensure that you have a regular income that can support you paying off debt on a regular basis. The company will work with you to create a plan that leaves you enough money for necessities like rent, food or entertainment, but sets aside most of your income to pay off your consolidation loan. The company will also set aside some money as part of your plan to pay their fee for managing your loan.
How do I set up a debt management plan?
The best way to set up a debt management plan that works for you to clear your debt is to get in contact with a trusted debt relief company. When it comes to finding a debt management company it is important that you do research to find the company that can offer you the best service for the most reasonable price. Do not be tempted to go with the first debt company that approaches you as you want to make sure that the one you go with is FCA approved. You can check the FCA register here.
If you need more information than is offered on a website most debt management companies will be happy if you could call them with questions or to find out more about their services. Just make sure you don’t agree to anything until you are completely ready and well informed.
Make sure that you read through terms and conditions carefully. The thought of ending your debt is very appealing but you still need to read the fine print. Make sure you understand when and how much you will be paying in fees and carefully calculate how much you need in monthly essentials, if you don’t have enough to live on you will never keep up with your repayment plan.
Once you have decided which debt management company you will be using, they will ask you for some personal information alongside your financial details. Once they have the information they need they will set about creating a clear debt management plan that will help you to clear your debt as quickly and easily as possible.
What are the advantages of a debt management plan?
A debt management plan can be a useful tool for anyone struggling with large amounts of debt. The plan will put all your debt into one loan making it clear and easy to see what you owe. It also allows you to set up a systematic and routine way to pay off your debt in smaller manageable chunks, meaning you will eventually be debt-free. Finally, consolidating your debts into one debt management plan means that you won’t be chased by lenders and debt collectors anymore, all communication will come via your debt management plan.
Are there disadvantages to a debt management plan?
Although a debt management plan is designed to be a useful tool for those struggling with debt, there could be some perceived downsides. It’s important that you fully understand what you are agreeing with before you enter into a debt management plan. remember that you will likely have to pay a fee to a debt management company and some companies will charge a setup fee. This can be a worry for those already struggling with their finances. You will also be required to give up some financial freedom as you will need to stick to a strict repayment program. You will also need to keep a job and receive a regular income to stay on top of your repayment plan. Remember that plans can take years to pay off so you should be committed for the long-term.
Are there other options?
Yes. you could set about creating your own debt management plan by organising to repay all your loans individually and set up a repayment plan with each. You could set aside money for necessities and use the rest to pay your debts. Programs like Excel spreadsheets can be useful when trying to organise large amounts of information like this.
If you are ever concerned about what the right choice is for you, get in contact with a debt or financial advisor. A trained professional will be able to assess your specific circumstances and advise you on the best path towards being debt-free. You can also seek free impartial advice on organising your debt from the Consumer Finance Protection Bureau online or by calling (855) 411-CFPB (2372), as well as report any issues to your state’s attorney general. Many charities have credit consellors so if you are in need and cannot pay you may still be able to seek free help with your debt.