A debt management plan could make a big difference to your finances if you're struggling with unmanageable debts.
How does it do this? A debt management plan - click here for more information on debt management plans - reduces your monthly debt repayments to an affordable level. Your new debt repayments will fit around your other essential costs, so you shouldn't fall short anymore.
But as with any debt solution, there are downsides to debt management too, and it's important that you understand exactly how it will affect you before you go ahead.
Debt management - how it works
Your debt management plan is an informal agreement between you and your lenders - they'd be asked to accept reduced monthly payments towards your debts. The monthly payments will be based on what you can afford after your other essential costs (e.g. bills, food, mortgage/rent) have been paid for. In other words, it should mean you can make your monthly debt payments without using the money you need for your essential expenses.
You'll be expected to pay as much as you can towards your debts for the duration of your debt management plan. This means that if your situation improves you'll be expected to start paying more, but similarly if your income falls your payments may also fall (although if your income falls too far, your debt management plan may no longer be suitable and you'll have to re-think the way you're tackling your debts).
As well as a reduction in your monthly payments, it's also common for lenders to agree to reduced or frozen interest (and other charges). This stops your debt from getting any bigger, helping you clear your debt more quickly than you could if it was still accruing interest.
What are the downsides for my finances? Because you'll be paying as much as you can towards your debt management plan, you'll have little money left over to spend on non-essentials - you'll have to be fully focused on paying your debts back.
Also remember that because you've not kept up with your original debt repayments, your credit rating will be affected, and this can make it more difficult to borrow money in the next six years. Finally, repaying any debt more slowly will mean it takes longer to clear, and it may end up costing you more in the long run.
