The Debt Management Programme
Online Debt Management Guide - Page 2 of 6:
If you are experiencing pressure from your creditors and finding it hard to cope, borrowing more money is unlikely to be the ideal solution. With a Debt Management Programme, your monthly payments could be reduced by up to 70%, usually leaving you with one single lower monthly repayment. Highly skilled advisors will negotiate with your creditors in order to reduce your monthly outlay.
The object of the Debt Management Programme is to leave you in a position where your monthly payments are affordable, especially taking into account your ability to be able to maintain your mortgage (or rental) obligations.
How does a Debt Management Plan work?
Carefully structured Debt Management is designed to enable you to pay one simple lower monthly payment, thereby taking away the stress and worry of day-to-day dealings with your individual creditors. Once your creditors can see a regular pattern of monthly payments being made to them, they will usually be happy to negotiate the freezing of charges and interest on the accounts.
Debt Management Programme: Case Studies
Case Study 1
Miss D was struggling to maintain her financial commitments.
Her rent payment was £260 per month, her monthly household bills were £440 per month and the contractual payments for her £8,000 of unsecured credit totalled £195 per month.
This represented total monthly commitments of £895.
Her net monthly income was only £750 so it was therefore determined that the amount available to fund her credit commitments was £50 per month.
A Debt Management Programme was proposed with a monthly payment of £50 resulting in a total saving of £145 per month. This immediately relieved the pressure and enabled Miss D to maintain her rent payments.
Case Study 2
Mr L was struggling to maintain his financial commitments.
His rent payment was £187.50 per month, his monthly household bills were £489.50 per month and the contractual payments for his £4,268 of unsecured credit totalled £265 per month. This represented total monthly commitments of £942.
His net monthly income was only £780 so it was therefore determined that the amount available to fund his credit commitments was £103 per month.
Therefore, a Debt Management Programme was proposed with a monthly payment of £103 resulting in a total saving of £162 per month. This immediately relieved the pressure and enabled Mr L to maintain his rent payments.
It is often possible to combine products like the Debt Management Programme with other products in order to provide the best solution. For example an Individual Voluntary Arrangement (IVA) can often be used in conjunction with a Debt Management Programme to provide financial relief at the earliest possible opportunity. This is demonstrated in Case Study 3 below:
Case Study 3
Mr & Mrs H were struggling to maintain their financial commitments.
Their rent payment was £525 per month, their monthly household bills were £1,141 per month and the contractual payments for their £45,548 of unsecured credit totalled £1,011 per month. This represented total monthly commitments of £2,677.
They only had a joint net monthly income of £2,133 so it was therefore determined that the amount available to fund their credit commitments was £467 per month.
Proposed Solutions:
a) Debt Management Programme
Because an IVA can usually take between 3-6 months to set up, a Debt Management Programme was initially proposed with a monthly payment of £467. This resulted in a total saving of £544 per month, and immediately relieved Mr & Mrs H’s financial pressure and enabled them to maintain their rent payments.
b) IVA
Following on from the Debt Management Programme, an IVA was then proposed, again with a monthly payment of £467 and a saving of £544 per month. During the 5 year term of the IVA Mr & Mrs H will have paid back £28,020, representing a 39.5% reduction in their total unsecured debt. Their creditors will then write off the remaining £17,528.
Is a Debt Management Plan appropriate for me?
If you cannot meet your current contractual credit repayments, and you are paying out more than you have income coming in, then a Debt Management Programme is highly likely to be an effective way of managing your debt, keeping your head above water, and keeping you in your home. However, after your priority debts (mortgage or rent payments), you must be able to afford to pay your unsecured creditors at least £50 per month.
However, you should bear in mind that a Debt Management Programme is not intended to be a long-term solution. It is an effective method for you to pay your debts each month at a level you can afford, until your situation improves or a more appropriate alternative long-term solution can be found.
What are the advantages and disadvantages of a Debt Management Plan?
Advantages
- You have the benefit of one lower regular monthly payment
- All communication with your creditors is handled by an experienced advisor
- You can usually review your account online
- It is often possible to have interest payments frozen on unsecured debts
Disadvantages
- Debt management can have an adverse effect on your credit record
- It will take you longer to pay off the full amount of your credit balances because your monthly payments have been reduced.
NEXT: IVA - Individual Voluntary Arrangement ›
