Who are Debt Management Plans Suitable For?
A debt management plan is an informal (not legally binding) arrangement between a borrower and their unsecured creditors that involves reorganising how their debts will be repaid. The aim is to allow the borrower to repay their debts at an affordable rate, making sure they can afford their repayments towards their unsecured debts as well as their essential costs of living. Repaying debts over a longer period of time, however, may increase the overall cost of the debt (due to interest). The new agreement could involve the creditors accepting lower monthly repayments and/or freezing interest - but please note that creditors are not obliged to agree to any changes to existing repayment plans. Furthermore, a debt management plan will remain on a borrower’s credit report for six years, which means that during this time, further credit could be harder and/or more expensive to obtain. Finally, as with any debt solution, it’s important to consider the alternatives before entering a debt management plan. For some people, a different debt solution such as a debt consolidation loan or an IVA (Individual Voluntary Arrangement) may be more suitable.