An introduction to debt management
Anyone’s circumstances can change. Their income can go down, their expenses can go up, they might have a baby, move house, get a new job involving more travel… Whatever the reasons, the payments they could comfortably afford three years ago may be impossible to make today.
If that problem sounds familiar, remember you’re not the first person to borrow money - or to have to deal with changes to their financial situation. If you realise you can’t make your payments any more, it may be the first time you’ve been in this situation, but your lenders will (almost certainly) have ‘been there before’.
So you may be surprised to find they’re willing to listen to your story, help you explore your options, and do what they can to help you find a way of repaying the money you owe them in a way you can realistically afford - i.e. more slowly than you originally agreed.
Having said that, they can’t help if they don’t know you’re struggling financially. That’s why it’s vital you get in touch with your lenders - or ask professionals to do it on your behalf.
A ‘debt management plan’ is a repayment plan that takes into account the fact that your situation has changed and you simply can’t keep up with your repayments any more. It involves talking to your lenders and telling them what you can realistically commit to paying every month once you’ve taken care of all your essential costs, from your mortgage/rent and food costs to your utility bills and essential transport costs.
Your unsecured lenders should understand that paying for these essential expenses has to be your top priority, and they may well agree to accept a pro rata (i.e. in relation to how much you owe them) portion of your disposable income (the income that’s left over once you’ve taken into account all your essential costs).
It’s up to you whether you talk to them on your own or ask a debt management organisation to do it for you.
Some people will prefer to do it on their own, maybe because they don’t want anyone else involved in their financial affairs, or maybe because they’re keen to save themselves the fee that the debt management organisation may charge.
Others would rather get some professional help so they don’t have to do all the calculations, negotiations, payments, etc. - they’d rather hand it all over to professionals, make one monthly payment and leave the rest to their debt management representative.
Either way, there are ‘cons’ as well as ‘pros’ associated with debt management. For example, repaying a debt more slowly will mean you’re defaulting on your agreement (not sticking to the terms you originally agreed to) and this will stay on your credit report for six years, which can make it harder and/or more expensive to get further credit during that time. It can also add to the overall cost of repaying your debt, since you’ll be paying interest for longer (unless your lenders agreed to freeze interest on your debt - or reduce it sufficiently).
Having said that, your lenders wouldn’t accept lower payments unless you were genuinely unable to keep up with the payments you originally agreed to make - so if you’re in that situation, there’s a fair chance you will have damaged your credit rating already.
Further reading
You can find more helpful advice on debt management here.
Comments
3 Comments on An introduction to debt management
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debt management plans on
Sat, 13th Feb 2010 8:01 am
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carol on
Mon, 22nd Feb 2010 4:35 am
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Kelly Johnes on
Mon, 22nd Feb 2010 5:05 am
An interesting read - some good tips here
Hi Admin,
I am Carol. I have visited your website and I would like to congratulate you on building such a valuable online resource. I am sure your visitors find your site as useful as I did.
My site also has relevant information in the same context, which I am sure your visitors will really appreciate. It would be great if we exchange links with each other. It would boost your search engine rankings, as relevant inbound links is the most important criteria for ranking on most search engines. It would also help bring targeted traffic to your site and reach out to a valuable, relevant audience.
If you are interested then please revert back to me ASAP. If you are not the concerned person then would request to kindly forward the mail to the respective person.
Waiting for your quick and positive reply.
Have a great day.
Thanks and regards
carol
Contact: nancysix00@gmail.com
Hi
A very good writing, keep up the good work. I am the owner of a few other blogs of different themes including finances. If you do wish for a mutual partnership, then please do revert me back at kellyjohnes@gmail.com.
I will be looking forward for a positive response from your side.
Thanks
Kelly
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