Opening bills in the new year can be a daunting task, and according to research by the Citizen’s Advice Bureau, more people than ever before are starting 2014 concerned about debt. Over Christmas and New Year, they saw a 39% rise in people accessing online help relating to debt, compared to the same time in 2013.
It’s not all doom and gloom though, if you’re one of the many people who made a New Year’s resolution to pay off consumer debt. 2014 can be the year that you tame your debt, with a variety of strategies that can make paying it all back more manageable.
Along with essentials such as sorting out a monthly budget and cutting back on discretionary spending, for people who owe under £10,000 to multiple lenders, a debt management plan can simplify your borrowing.
What is a Debt Management Plan?
One of the more difficult things about being in debt is how complicated it can become, with different payments going out at different times, and needing to deal with correspondence and phone calls from lenders. It can be easy to feel that your debt is out of your control, especially if interest and charges are racking up.
A debt management plan combines all your debts into one monthly repayment, which is made to the company you’ve set up your plan with. Your payment is then shared out among your creditors.
The company can often negotiate lower payments that are made over a longer period of time, sometimes even freezing interest or charges.
The Top Benefits of a Debt Management Plan
If you’re struggling to repay and manage your debts, a debt management plan can offer a number of significant benefits.
One of the biggest pluses is that all your debt repayment is consolidated into one monthly payment, at a level which you have proved you can afford. This can make it easier to create and stick to budgets, as well as regaining control over where your money is going. This can also help you to avoid going overdrawn, or having payments bounce, which in turn can lead to you spending unnecessary money on charges and interest.
A professional debt management advisor can negotiate with your creditors on your behalf, and may be able to agree a freezing or reduction in interest or charges. This can significantly reduce the amount repaid, and make your monthly repayments more manageable.
If you’re having difficulty meeting all your repayments on time, being contacted by your creditors can be very stressful and it can be daunting to try and call them yourself to sort out problems. As part of a debt management plan, your contact with your creditors is reduced.
Drawbacks to a Debt Management Plan
One of the most important things to realise is that your creditors aren’t obliged to agree to a debt management plan. However, if you’re finding it hard to make payments or missing some, a plan can be attractive to creditors as it will clearly show them that they will recoup their money.
Even if your debt management plan is accepted, there’s no guarantee that interest and charges will be frozen.
Making smaller monthly payments can also mean that it will take you longer to pay off your debt.
Getting a debt management plan might impact your credit rating too.
You can only take out a debt management plan for unsecured personal loans and credit cards, so it’s not the right solution if you’re struggling with secured loans or what are known as priority debts, such as rent, council tax or utility arrears.
Lastly, if you’re aren’t able to keep up with your consolidated payments, you can find that your plan will be cancelled. This will result in creditors starting to contact you again, and resuming interest and charges if they were frozen.
Like any debt consolidation programme, it’s a good idea to seek expert help and advice before choosing a course of action.
If you’re looking to tame your debt in 2014, a debt management plan is just one option that might make it more manageable. Other options include debt consolidation loans and an IVA.
Your Debt Compared the UK Average
You can compare your own debt with the rest of the UK and see where you stand- it could probably make you feel much better about your financial situation! If you think that you are stuck in a financial rut, it’s worth checking out this infographic:
I feel much better about any of my Uni fees after comparing my debt with the rest of the UK!
A very well-written post here, Julie. Nice stuff!