Updated: 5th February 2020
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A Debt Management Plan is an informal arrangement that can be reached between a debtor and a creditor with a view to seeing amounts owed settled in full. A plan in this context is crafted in order to give a debtor a better chance than they would otherwise have of paying back the unsecured debts that they have outstanding.
The fundamental idea behind creating a Debt Management Plan is that it functions as a pledge by a debtor to pay back money they owe to creditors who agree to the terms of a deal they’re presented with. There is no obligation on creditors to agree to the terms outlined by a repayment plan but even the process of offering them reflects well on a debtor as someone who is willing and aiming to sort out their debt problems.
Personal unsecured debts on any scale can become a real burden and potentially a major financial headache for anyone and that’s the case for thousands of people living in Scotland and across the rest of the UK. Spending on credit cards or using payday loan services doesn’t necessarily result in debt problems but when they do the consequences can be tough to bear and individual debtors generally need to seek help and take action to turn their financial situation around.
A Debt Management Plan offers one potential route away from a position of being seriously indebted and opens up the prospect of satisfying creditors. It sets out the terms under which you intend to pay back your creditors all the money that you owe them. Whether or not your creditors will agree to the deal you offer them will depend on a variety of factors but often they will be glad to see a commitment to repayment from you in writing and be satisfied with the plan.
It is also not uncommon for the terms of a repayment plan to involve a cessation of interest chargers being added on to the debts you owe. This isn’t always something that creditors will be happy to agree to but where that kind of caveat is accepted the benefits to a debtor can be very significant and make a massive difference.
What you get with a Debt Management Plan is a potentially valuable measure of breathing room with regard to your outstanding arrears. However, because the plan only represents an informal agreement it relies on goodwill on both sides of the equation. With that goodwill though comes the prospect of bringing down the amounts of money you are obliged to repay to your creditor on a monthly basis and, over time, the overall scale of your debts will be brought much more firmly under your own control as an individual borrower.
There are other debt solutions available if you live in Scotland, such as Trust Deeds, Sequestration or Debt Arrangement Schemes, but a Debt Management Plan functions as a sound option for people who want to settle their unsecured debts before they get any worse.
A Debt Management Plan might be right for you if, for example, you’ve begun to find it increasingly difficult to keep pace with your credit card debt repayments or you’re struggling to fend off creditors who want more of their money back than you can afford to pay.
Generally an informal plan can work well in the context of a debt situation that involves less than £15,000. If you owe any more than that and you’re finding it challenging to manage your finances then it could be that a Debt Arrangement Scheme, a Trust Deed or sequestration could be better options in your case.
A Debt Management Plan is only designed to provide a blueprint for resolving issues relating to unsecured personal debts, such as those accumulated through credit cards, personal loans, store cards or payday loans. Any other kind of arrears cannot be included into discussions around the formulation of a Debt Management Plan so if you’re having trouble with making mortgage payments or settling secured loans then other avenues will have to be pursued.
Also, if you are having problems with paying off your student loans, meeting council tax requirements or keeping up with hire purchase payments then a Debt Management Plan is not the option you’re after. And, if you do set up a Debt Management Plan then you will still be required to continue making payments in each of those areas as normal.
A key advantage of Debt Management Plans is that they offer a way of dealing with debt more routinely and effectively than might otherwise be the case. Although the terms of a plan are not formal in the sense that they are not legally binding, they can provide some very worthwhile and valuable structure in the context of making regular repayments and potentially becoming debt free.
Another advantage of entering a plan is that they offer the opportunity for an individual to turn around their finances before they become so bad that their credit ratings are seriously damaged, as they can be by entering any kind of formal insolvency.
Establishing a Debt Management Plan also serves to ease the pressure from creditors that debtors often feel when they are finding it difficult to keep on top of their outgoings.
The fact of an individual entering a Debt Management Plan with a view to improving their financial position isn’t automatically entered on to their credit rating because there isn’t a central record associated with these processes. However, it is likely that the way you’re aiming to pay back certain creditors will be detailed on your credit rating profile.
Entering a Debt Management Plan in itself isn’t taken as a clear sign of poor credit worthiness and it is certainly better from a credit rating perspective than more serious alternatives and formal insolvency. However, if the terms of a repayment plan are not adhered to then the debtor involved may find it more difficult to access further credit in future, from the lender in question and more generally.
Whatever the extent of your financial difficulties or your debt problems, it is very important to get the right support and advice if the situation is causing you real concern and you are unsure of how best to proceed.
However bad your circumstances might seem, there are always options and ways forward that limit the potential damage and difficulties you’ll face. Seeking help from experts like Real Business Rescue could well be the first step towards a much healthier financial future.