If you're unable to keep repaying your debt at its current level, then the best thing to do is to get in touch with a company that offers free debt advice. One of the options they will probably tell you about are debt management plans.
What is a Debt Management Plan?
Sometimes titles are difficult because they are too specific and it just sounds like jargon. In this case though the title has the opposite problem, it is too general and sounds like it could refer to a number of differing things. In this case however, a debt management plan refers to an informal way of arranging your making reduced payments to your creditors.
Even though this is an entirely informal arrangement which you enter in to with your creditors, they usually do not arbitrarily bring it to an end, although they can. So as long as you keep up with your payments, it should work fine.
The way it works is that you will sort out with the debt management company how much you can afford to pay each month towards your debt. They will take this to your creditors, and they can either agree to this or not. The reason they usually do agree is that otherwise you may have to stop making payments all together and they would have to take legal action which would probably result in them receiving reduced payments in any case.
It should be noted that this refers to your unsecured debt. Any creditor that you have got a secured debt from will probably not accept reduced payments as they have a claim on your property if you do not keep paying them what was originally agreed. They can therefore get their money back that way.
With lenders of unsecured loans it is different. It could end up that they are allowed to take some of your possessions, or even get a charging order put on your house which in effect makes it in to a secured loan. However that is only after they have gone to the courts and you don't pay what the court lays down.
The Alternatives
When it comes to debt solutions, there are lots of them. Which will be best is going to depend on your specific circumstances. So here are some of the other options which you can learn about when you contact a company for debt advice.
An option that is quite similar to a debt management plan is an IVA. This is a formal procedure, but you still only have to pay what you can afford each month, and its distributed for you by a third party. One of the main differences is that after 5 years of making these payments, the rest of your debt is written off.
If you are in a particularly bad situation, in which you are unable to make any reasonable payments then declaring yourself bankrupt might be the only option. However, this has a number of disadvantages so should be avoided if at all possible.
The cost of bankruptcy alone is enough to put off a lot of people. Indeed, they may not be able to afford it as it's over 700 (cash!). Also, your property is at risk, you will probably at least lose some of your possessions, which will be sold to so that as much of your debt can be paid off as possible.
Instead of bankruptcy, one bit of debt advice you may receive is to go for a debt relief order instead. The effect of this is that you immediately stop making payments, and after a year your financial situation is investigated again. If you still can't pay, then the debt is written off.
What is a Debt Management Plan?
Sometimes titles are difficult because they are too specific and it just sounds like jargon. In this case though the title has the opposite problem, it is too general and sounds like it could refer to a number of differing things. In this case however, a debt management plan refers to an informal way of arranging your making reduced payments to your creditors.
Even though this is an entirely informal arrangement which you enter in to with your creditors, they usually do not arbitrarily bring it to an end, although they can. So as long as you keep up with your payments, it should work fine.
The way it works is that you will sort out with the debt management company how much you can afford to pay each month towards your debt. They will take this to your creditors, and they can either agree to this or not. The reason they usually do agree is that otherwise you may have to stop making payments all together and they would have to take legal action which would probably result in them receiving reduced payments in any case.
It should be noted that this refers to your unsecured debt. Any creditor that you have got a secured debt from will probably not accept reduced payments as they have a claim on your property if you do not keep paying them what was originally agreed. They can therefore get their money back that way.
With lenders of unsecured loans it is different. It could end up that they are allowed to take some of your possessions, or even get a charging order put on your house which in effect makes it in to a secured loan. However that is only after they have gone to the courts and you don't pay what the court lays down.
The Alternatives
When it comes to debt solutions, there are lots of them. Which will be best is going to depend on your specific circumstances. So here are some of the other options which you can learn about when you contact a company for debt advice.
An option that is quite similar to a debt management plan is an IVA. This is a formal procedure, but you still only have to pay what you can afford each month, and its distributed for you by a third party. One of the main differences is that after 5 years of making these payments, the rest of your debt is written off.
If you are in a particularly bad situation, in which you are unable to make any reasonable payments then declaring yourself bankrupt might be the only option. However, this has a number of disadvantages so should be avoided if at all possible.
The cost of bankruptcy alone is enough to put off a lot of people. Indeed, they may not be able to afford it as it's over 700 (cash!). Also, your property is at risk, you will probably at least lose some of your possessions, which will be sold to so that as much of your debt can be paid off as possible.
Instead of bankruptcy, one bit of debt advice you may receive is to go for a debt relief order instead. The effect of this is that you immediately stop making payments, and after a year your financial situation is investigated again. If you still can't pay, then the debt is written off.
About the Author:
Edward Cook is very knowledgeable in wide ranging financial matters. He very much enjoys writing regularly at http://www.debtadvice.net a place you can discover much more about Debt Advice.
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