If you’re carrying several debts and you can’t afford your monthly repayments, a debt management plan may be right for you.

A debt management plan is an informal agreement between you and your unsecured creditors in which you’ll ask them to accept lower monthly payments towards your debts based on an amount you can afford after your essential costs have been covered.

Your creditors don’t actually have to agree to any changes, but they’re more likely to if they see it will help you repay what you owe. If they do agree to the changes, they may also agree to freeze/reduce the interest and other charges on your debts.

How do you know if a debt management plan would be right for you?

To find out if a debt management plan really would be right for you – or if you might be better off exploring alternatives – you could speak to some experts in debt management. Here, though, we’ll look at some of the things that may make you eligible for this particular debt solution:

You can no longer afford your unsecured debt repayments

Your creditors will only agree to a debt management plan if you cannot afford your unsecured debt repayments. So, if your income no longer covers your monthly debt repayments, you may be able to apply for one. Remember, you’ll always be expected to pay as much as you can afford each month, so whatever money you’ve got left each month (after your essential costs) will probably need to go towards your debts.

You will still be able to repay your unsecured debts in full

Debt management is designed to allow you to repay the money you owe, in full, but over a longer period of time. For that reason, if you don’t think you’ll ever clear your debts, a debt management plan won’t be right for you. In this situation, you may find that an alternative debt solution, such as an IVA (Individual Voluntary Arrangement) would be more appropriate.

Some points to consider with debt management

As with any other debt solution, there are several things you should bear in mind with debt management. For example, because you’ll no longer be making the payments you originally agreed to, your credit rating will be affected. And, unless your creditors agree to reduce or freeze the interest charged on your debts, a debt management plan could cost you more overall because of the longer repayment period.