Debt Management Plans | The Pros and Cons...

If you are considering entering into a Debt Management Plan its important to understand the pros and cons involved. Debt Management is only an informal arrangement, meaning you can cancel at anytime without repercussion, this can be helpful if you are not entirely happy or you find an alternative solution to your financial situation.

Below is a comprehensive list of pros and cons surrounding Debt Management;

Pros;

• Reduces hassle from creditors
  Can dramatically reduce phone calls and letter from creditors which should help you sleep better at night!


• Freeze interest an charges
  In most circumstances, a good Debt Management Company will be able to negotiate on your behalf and have the interest and charges frozen, allowing you repay you debts faster


• Can get you one, lower payment each month
  You will only have to make one payment each month towards your Debt Management Company, they will sort out the rest! They will take your payment and distribute it evenly to your creditors


• Informal arrangement
  Debt Management is an informal arrangement between you and your creditors, meaning that any agreements that your Debt Management Company have set in place for you can be easily changed. i.e. If one month you cannot afford to pay, or if you need a repayment holiday, this can be easily arranged without compromising your original plan


• Piece of mind
  Once all the new arrangements have been set in place by your Debt Management Company you can relax, rest assured your debts are being dealt with professionally

Debt Settlement
Once you have been on a Debt Management Plan for at least six months, most creditors will give you the option to settle your account in full for a lesser amount, sometimes as low as 30% of your total debt. So if you have savings stacked away or can you have family or friends which you could borrow from, then you could be debt free in no time!

Cons;

• Affects credit rating
  Like most debt solutions, taking out a Debt Management Plan may mean your credit rating is temporarily affected and you may struggle to get further credit. To what extent entirely depends on your financial circumstances, but once you have completed the plan your credit rating will begin to improve. You credit report will be marked as ‘all debts satisfied’, allowing you to take out further credit if required.

If you need more information on repairing your credit rating, there are a number of steps you can take which will improve your credit score. Click here for more details.

• You may still receive occasional creditor contact
  In the initial stages of setting up a Debt Management Plan you may still occasionally receive contact from your creditors. Once all new arrangements have been set in place and regular payments are being received this should all die down.