Debt management programs are mentioned in the news and online, but it can sometimes feel like they are not explained very well and can often be confusing. This is not what you need during an already very stressful time when you may not be thinking straight. However, this article will give you an easy and digestible breakdown of the ins and outs of a debt management program and help you decide if they are right for you.
To sum up the answer to what exactly is a debt management program: it is an agreement between you and your creditors to pay off every bit of debt owed. You would have a set payment to a debt management company, and they share it out between the creditors (people that you have borrowed money from).
The company must be licensed by the Office of Fair Trading, they will be the ones that work out your monthly payments after you have given them the details of all your creditors, assets, income etc. They are also the ones who contact the creditors and ask them to agree on the plan.
It’s important to remember that some (most) companies charge a set up fee and a handling fee for each payment (usually 15% of the payment).
However, this will all be explained before signing up, and if it’s not look for another company. Ensure you understand all of the costs and implications of your plan!
One of the biggest attractions to a debt management plan is that once it is finished, you are debt free. Creditors cannot contact you for any more money and you are free to start again.
If you are a home owner, failure to make payments may result in losing equity from your home or the home itself. As well as other any other valuables you own e.g. a car. In extreme circumstances imprisonment is also an option.
The debt management program WILL show up on your credit file, which potentially could stop you from getting any future credit, however there are positives and negatives with most things.
If you feel that you will be able to make payments regularly and that your debt is temporary then a debt management program could be great for you. Weigh up your options and speak to an expert and remember that there are ALWAYS options!