Debt Management - A Helpful Guide

A debt management plan is a new repayment agreement between a borrower and their unsecured lenders. It involves a 're-arrangement' of how outstanding debts will be repaid, on the grounds that the individual can't afford to meet their repayments as they stand.

Debt management could involve the lenders agreeing to accept lower monthly repayments, and/or freeze or reduce interest and other charges, although lenders are not obliged to accept any changes to the original repayment agreement. And if they do agree to accept lower payments, it's important to realise that repaying any debt more slowly can add to the overall cost, as the borrower will be paying interest for longer too (unless the creditors agree to freeze interest).

Finally, note that failing to stick to the original repayment agreements will damage a borrower's credit rating, whether or not they enter a debt management plan. This can make it harder and/or more expensive to obtain further credit for six years.

Budgeting - understanding and controlling money

During a debt management plan, one way in which an individual can make sure they have enough money to make their repayments is to improve their budgeting skills.

Budgeting is all about understanding and controlling finances. By improving their budgeting skills, an individual can learn to keep track of where their money goes, and make sure they're not spending what they need to make payments to their debt management plan.

In order to create a budget, an individual has to calculate:

* their total income - everything they earn/receive, and
* their total expenditure - everything they need to spend, from mortgage/rent payments to utility bills, food and petrol.

Once they have done this, they should subtract th

The individual's payments to their debt management plan will be based on their disposable income, as it represents the maximum they can afford to pay towards their unsecured debts without using money they need for their essential costs - like paying the mortgage/rent, or paying for essentials like food and heating.

This is what their creditors will expect them to pay, so if the debt management plan is to succeed, it's very important that they make every effort to do so.