What Is A Debt Management Plan?

 

If you cannot afford your debt payments, this option might help.

 

Lenders get asked to accept a reduced repayment. They’re asked to suspend interest and charges.

 

With creditor support, a debt management plan helps you to repay your debt. It can relieve personal stress and pressure.

 

Can You Set Up Your Own Plan?

 

You don’t need to use an external operator to manage your debts. Plenty of people make their own direct arrangements with their creditors.

 

A self-managed debt plan could be the right choice for you.

 

For others this will be the wrong choice. There is work involved you might prefer others to handle. The more creditors you have, the more work there will be. Expert ongoing support is valuable to some people.

 

Get Expert Debt Advice First

 

Dealing with debt is complex. A debt management plan may not be the best solution for you.

 

Other options might enable you to clear your debts faster and cheaper. Other solutions might better control the risks you face. A poorly constructed plan can make your finances worse.

 

Expert debt advice identifies your choices. It highlights pros and cons. You can make an informed decision about which you feel confident.

 

For expert help with debt, please contact us.

 

Work Out How Much You Can Pay

 

Before you contact creditors, write down your budget. It might be useful to use your bank statement when doing this.

 

Firstly, list your income sources. This should include salary, benefits, and pensions.

 

List your essential bills. They include your mortgage or rent, council tax, and utilities. List your other bills such as insurances, mobile phone, and TV packages.

 

You should list your other regular costs. This includes food and travel. It includes many things that get missed easily. Examples include clothing, hairdressing, healthcare, and vehicle servicing. Some of this spending might be irregular. Think how much you might spend in a year then average it out.

 

Being in debt doesn’t mean putting your life on hold. It’s acceptable to budget for some social activities.

 

Using a budget tool will help you to cover everything. Here’s a good one provided by the Money Advice Service. Further help is available using the CABmoney tool.

 

How much money is left over after bills and expenses? This is money that can get used to repay debt.

 

Priority And Non-Priority Debts

 

When it comes to debt management, not all debts are the same.

 

Priority debts should get dealt with first. Examples include rent or mortgage arrears. They include council tax, utilities, and car finance arrears. They include HMRC, court fines, and traffic penalties. They’re the debts that can cause the most serious problems for you. They’re not usually included in debt management plans.

 

Non-priority debts get dealt with afterwards. They’re the debts that get included in debt management plans. Examples include credits cards, unsecured loans, and overdrafts. They include catalogues and payday loans.

 

If you have priority debts, we advise you to get expert debt advice. They should be under control before starting a DMP.

 

Expenditure Guidelines For Debt Solutions

 

Expenditure guidelines get used by the advice and collections sector. They’re licenced, so we’re unable to share the details.

 

They apply to personal spending rather than bills. Creditors are unlikely to quibble about your rent or mortgage amount. They might quibble about a large social budget.

 

We suggest you aim simply to be reasonable. You have reasonable needs that should get budgeted for. Lenders reasonably expect you to pay what you can afford. It’s about finding a fair balance.

 

Create A List Of Your Debts

 

Write down all the debts you owe. This helps to avoid missing out a creditor. Your credit file might help to fill in any gaps.

 

You need this information when dealing with your creditors.

 

Keep all letters and emails. Debts often change hands once they default.

 

Should You Change Bank Account?

 

If you owe your bank money, get a new account elsewhere. Use a current account at a bank you owe nothing.

 

If you don’t, you’re at risk of “set off”. This is where a bank takes cash from one account to pay another. For example, cash gets taken from your current account to pay your credit card. You could get left without cash for important bills.

 

Change bank account before the debt management plan begins.

 

Cancel Your Creditor Payments

 

You will need to cancel the existing payments to your creditors. Contact your bank to do this.

 

Cancelling the payments will cause you to fall into arrears. Your creditors are likely to contact you to discuss payment.

 

Contact Your Creditors

 

Tell your creditors you are experiencing financial difficulty. They have processes to deal with this. Once they know you have money problems, they can help you better. They should give you “breathing space” to put a new plan in place.

 

Your creditors will want to understand your position. They will want to understand your income and expenditure. They need to understand about the other debts you owe. This can get explained by telephone. The information could get posted or emailed to them.

 

These telephone calls may be long. The lender has a duty to understand your financial status. They should not ask you for a payment you cannot afford.

 

You need to balance the interests of your creditors. Large debts should get offered more than small debts. This is known as “pro rata” payment and is understood to be fair.

 

Ask the lenders to suspend interest and charges. They often agree if they agree you are in financial difficulty.

 

Make The Payments

 

For most people, an automatic payment is best. You avoid having to manually make the payments each month. This will be a standing order, direct debit, or continuous payment arrangement (CPA).

 

Standing orders are your instruction, to your bank, to pay someone. You can stop this yourself if you need to.

 

Direct debits give consent to another party to take money from your account. You can contact the firm or your bank to remove consent.

 

A CPA is giving consent to a firm to charge your debit card. You can contact the firm or your bank to remove consent.

 

If your income is irregular, you may choose to pay manually. This can help to avoid failed transaction charges.

 

Keep Creditors Updated

 

Income and bills tend to change over time. This can affect how much you can pay. Contact your creditors if your financial position changes.

 

Creditors my seek updates from time to time. They’re checking the payment is fair and affordable. You may need to provide them with new income and expenditure information.

 

When Debts Change Hands

 

Debts often move to a new party. They can get outsourced to a debt collection agency. They can get sold to a debt purchaser.

 

If this happens, contact the new party. You will need to make a new agreement with them. Debt collectors and purchasers are well-used to debt management plans.

 

Threats Of Legal Action

 

Debt collection letters often imply the risk of legal action. They’re written this way to get your attention. If you believe legal action is likely to happen, get debt advice ASAP.

 

Legal action is rare if you’re paying what you can afford.

 

If you receive Court papers, get debt or legal advice ASAP. These papers must get dealt with promptly.

 

Monitor Your Debt Level

 

You will continue to receive statements.

 

Check them to make sure your payments got added. Check the balances are heading downwards. If they’re not, check whether interest is still being charged. Challenge creditors that continue to charge interest.

 

Consider how long it will take to clear the debts in full. If the term is long, get debt advice about other options. A debt management plan might not be the best solution.

 

Settling Debts Early

 

What happens if you receive a lump sum? Examples include inheritance, bonuses, gifts, or a pension lump sum.

 

Your creditors might accept a reduced sum to settle your debt. This could help you to clear your debts sooner. You don’t have to deal with all creditors at the same time. Small lump sums could get used to settle a couple of your debts.

 

Contact your creditors and offer them a reduced sum. Ask for written record of any agreement before you pay. Keep this record in case it’s needed later.

 

Help With Debt Management Plans

 

If self-managing isn’t right for you, please contact us.

 

We’re a direct provider of debt management services. We have great experience of setting up effective plans.

 

You also have the option to select a free-to-client service. Contact the Money Advice Service to get connected to these free services.

 

 

Author: Andrew Graveson  – Qualified Debt Adviser & Bright Oak’s Founder

 

Page Last Updated: 11/09/2019

 

 

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What Is A Debt Management Plan?

 

If you cannot afford your debt payments, this option might help.

 

Lenders get asked to accept a reduced repayment. They’re asked to suspend interest and charges.

 

With creditor support, a debt management plan helps you to repay your debt. It can relieve personal stress and pressure.

 

Can You Set Up Your Own Plan?

 

You don’t need to use an external operator to manage your debts. Plenty of people make their own direct arrangements with their creditors.

 

A self-managed debt plan could be the right choice for you.

 

For others this will be the wrong choice. There is work involved you might prefer others to handle. The more creditors you have, the more work there will be. Expert ongoing support is valuable to some people.

 

Get Expert Debt Advice First

 

Dealing with debt is complex. A debt management plan may not be the best solution for you.

 

Other options might enable you to clear your debts faster and cheaper. Other solutions might better control the risks you face. A poorly constructed plan can make your finances worse.

 

Expert debt advice identifies your choices. It highlights pros and cons. You can make an informed decision about which you feel confident.

 

For expert help with debt, please contact us.

 

Work Out How Much You Can Pay

 

Before you contact creditors, write down your budget. It might be useful to use your bank statement when doing this.

 

Firstly, list your income sources. This should include salary, benefits, and pensions.

 

List your essential bills. They include your mortgage or rent, council tax, and utilities. List your other bills such as insurances, mobile phone, and TV packages.

 

You should list your other regular costs. This includes food and travel. It includes many things that get missed easily. Examples include clothing, hairdressing, healthcare, and vehicle servicing. Some of this spending might be irregular. Think how much you might spend in a year then average it out.

 

Being in debt doesn’t mean putting your life on hold. It’s acceptable to budget for some social activities.

 

Using a budget tool will help you to cover everything. Here’s a good one provided by the Money Advice Service. Further help is available using the CABmoney tool.

 

How much money is left over after bills and expenses? This is money that can get used to repay debt.

 

Priority And Non-Priority Debts

 

When it comes to debt management, not all debts are the same.

 

Priority debts should get dealt with first. Examples include rent or mortgage arrears. They include council tax, utilities, and car finance arrears. They include HMRC, court fines, and traffic penalties. They’re the debts that can cause the most serious problems for you. They’re not usually included in debt management plans.

 

Non-priority debts get dealt with afterwards. They’re the debts that get included in debt management plans. Examples include credits cards, unsecured loans, and overdrafts. They include catalogues and payday loans.

 

If you have priority debts, we advise you to get expert debt advice. They should be under control before starting a DMP.

 

Expenditure Guidelines For Debt Solutions

 

Expenditure guidelines get used by the advice and collections sector. They’re licenced, so we’re unable to share the details.

 

They apply to personal spending rather than bills. Creditors are unlikely to quibble about your rent or mortgage amount. They might quibble about a large social budget.

 

We suggest you aim simply to be reasonable. You have reasonable needs that should get budgeted for. Lenders reasonably expect you to pay what you can afford. It’s about finding a fair balance.

 

Create A List Of Your Debts

 

Write down all the debts you owe. This helps to avoid missing out a creditor. Your credit file might help to fill in any gaps.

 

You need this information when dealing with your creditors.

 

Keep all letters and emails. Debts often change hands once they default.

 

Should You Change Bank Account?

 

If you owe your bank money, get a new account elsewhere. Use a current account at a bank you owe nothing.

 

If you don’t, you’re at risk of “set off”. This is where a bank takes cash from one account to pay another. For example, cash gets taken from your current account to pay your credit card. You could get left without cash for important bills.

 

Change bank account before the debt management plan begins.

 

Cancel Your Creditor Payments

 

You will need to cancel the existing payments to your creditors. Contact your bank to do this.

 

Cancelling the payments will cause you to fall into arrears. Your creditors are likely to contact you to discuss payment.

 

Contact Your Creditors

 

Tell your creditors you are experiencing financial difficulty. They have processes to deal with this. Once they know you have money problems, they can help you better. They should give you “breathing space” to put a new plan in place.

 

Your creditors will want to understand your position. They will want to understand your income and expenditure. They need to understand about the other debts you owe. This can get explained by telephone. The information could get posted or emailed to them.

 

These telephone calls may be long. The lender has a duty to understand your financial status. They should not ask you for a payment you cannot afford.

 

You need to balance the interests of your creditors. Large debts should get offered more than small debts. This is known as “pro rata” payment and is understood to be fair.

 

Ask the lenders to suspend interest and charges. They often agree if they agree you are in financial difficulty.

 

Make The Payments

 

For most people, an automatic payment is best. You avoid having to manually make the payments each month. This will be a standing order, direct debit, or continuous payment arrangement (CPA).

 

Standing orders are your instruction, to your bank, to pay someone. You can stop this yourself if you need to.

 

Direct debits give consent to another party to take money from your account. You can contact the firm or your bank to remove consent.

 

A CPA is giving consent to a firm to charge your debit card. You can contact the firm or your bank to remove consent.

 

If your income is irregular, you may choose to pay manually. This can help to avoid failed transaction charges.

 

Keep Creditors Updated

 

Income and bills tend to change over time. This can affect how much you can pay. Contact your creditors if your financial position changes.

 

Creditors my seek updates from time to time. They’re checking the payment is fair and affordable. You may need to provide them with new income and expenditure information.

 

When Debts Change Hands

 

Debts often move to a new party. They can get outsourced to a debt collection agency. They can get sold to a debt purchaser.

 

If this happens, contact the new party. You will need to make a new agreement with them. Debt collectors and purchasers are well-used to debt management plans.

 

Threats Of Legal Action

 

Debt collection letters often imply the risk of legal action. They’re written this way to get your attention. If you believe legal action is likely to happen, get debt advice ASAP.

 

Legal action is rare if you’re paying what you can afford.

 

If you receive Court papers, get debt or legal advice ASAP. These papers must get dealt with promptly.

 

Monitor Your Debt Level

 

You will continue to receive statements.

 

Check them to make sure your payments got added. Check the balances are heading downwards. If they’re not, check whether interest is still being charged. Challenge creditors that continue to charge interest.

 

Consider how long it will take to clear the debts in full. If the term is long, get debt advice about other options. A debt management plan might not be the best solution.

 

Settling Debts Early

 

What happens if you receive a lump sum? Examples include inheritance, bonuses, gifts, or a pension lump sum.

 

Your creditors might accept a reduced sum to settle your debt. This could help you to clear your debts sooner. You don’t have to deal with all creditors at the same time. Small lump sums could get used to settle a couple of your debts.

 

Contact your creditors and offer them a reduced sum. Ask for written record of any agreement before you pay. Keep this record in case it’s needed later.

 

Help With Debt Management Plans

 

If self-managing isn’t right for you, please contact us.

 

We’re a direct provider of debt management services. We have great experience of setting up effective plans.

 

You also have the option to select a free-to-client service. Contact the Money Advice Service to get connected to these free services.

 

 

Author: Andrew Graveson  – Qualified Debt Adviser & Bright Oak’s Founder

 

Page Last Updated: 11/09/2019

 

 

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