Here we look briefly at a Debt Management Plan as a means of dealing with personal debt. This is the second of the four main approaches we are looking at in this series of articles about Dealing with Personal Debt. In the first article we looked at Debt Consolidation.
Debt management involves making offers of repayments to your creditors based on what you can afford to pay back. Normally you would prepare a Debt Management Plan which you present to your creditors and you seek to get their agreement to your proposed plan to repay your debts. You provide details of your income and expenditure and you show how you will distribute your disposable income to your creditors. Usually you will offer to repay each creditor in proportion to the size of the debt you owe to them. For example, if half of your debts are with one creditor, then you would pay half of your disposable income to that creditor and pay the other creditors on a similar proportionate basis. You do not need any professional assistance to establish a Debt Management Plan but many debtors use the services of specialist Debt Management companies. Such companies generally have a high success rate in terms of getting creditors to agree tom your Debt Management proposal and to suspend interest and penalties during the term of the Debt Management Plan.
It is important to be aware that there is no legislative basis for the control of Debt Management Plans and for that reason it can be difficult to get all your creditors to accept your Debt Management proposal. Some may accept and some may not. Some may accept for a limited period of say six months. Some creditors may refuse to freeze interest and penalties on your debts during the life of the Debt Management Plan. Be aware that since a Debt Management Plan commits you to repaying all of your debts over time, it may last for a long time, up to ten years or even more. Finally Debt Management does not offer you any formal legal protection from your creditors but depends on their good will and of course your own adherence to the repayments plan.
In our next article, we will look briefly at the third of the main approaches to personal debt problems i.e. an Individual Voluntary Arrangement.
Author : Paddy Byrne 30/08/2012