image credit: Simon Cunningham
The average debt, including mortgages, per UK household this year was £54,979 according to the Money Charity organisation. With a total personal debt of £1.452 trillion, this small island country has amassed a huge debt owed to banks and creditors.
This is damaging for a recovering economy reliant on people spending money to generate activity, and highlights the importance of individuals working their way out of debt without impacting upon their lifestyle.
A debt management plan is designed to help debtors repay unsecured debts (so that mortgage remains) without significantly inhibiting their lifestyle and spending habits. The debt management plan is designed bespoke around the debtor’s financial situation, ensuring their quality of life does not significantly suffer whilst working their way out of the red and into the black.
What Does a Debt Management Plan Do?
A debt management advisor will assess your financial situation, measuring your income against your outgoings and determine a structured repayment plan which would best suit you, the debtor. The advisor will then approach all the creditors of your unsecured debts and propose this new repayment plan to them, stressing the benefits they will receive – the decreased likelihood of missed payment or debtors seeking bankruptcy.
If all parties agree upon a new repayment structure, this is put into practice and the debt continues to be paid at a more agreeable rate.
Why Do you Need a Debt Management Advisor?
There are a number of companies out there, such as In Control, who can help with a wide range of creditors. Their professional approach can help the creditors understand the severity of the situation and explain the process thoroughly.
Attempting to restructure your repayment without the help of a professional could be problematic if you do not have sufficient experience in the financial sector or with creditors.
Furthermore, the debt management advisor can serve as a stress-relieving shield for you and your family. When a debt management plan has been entered into, your creditors are no longer allowed to contact you directly for your debt.
Can a Debt Management Plan Help You?
Debt management plans can only be used to repay unsecured debts, so debts such as mortgages cannot be included in the restructuring.
Different debt management companies have different additional criteria which the debtors have to meet in order to qualify for the plan. These criteria can include, but are not limited to:
- £1,000+ Unsecured Debt
- Multiple Creditors
- Proof of Income
Debtors who meet these criteria may be entitled to enter into the plan, restructuring their repayments, better suited to their financial situation.
When Could You Be Debt Free?
Many debt management companies and creditors insist the debt must be paid off within 10 years, but the length of each repayment structure is dependent upon the level of debt and the debtor’s incomings. Lowering the regular payments may prolong the repayment period, but you could be free of unsecured debt by 2020.