What will a debt management company do?

There is more than one way a debt management plan can be arranged. Some people prefer to do everything by themselves, while others prefer to get help from a professional debt management company.

Whatever you decide to do, first of all you should make sure a debt management plan is the right choice for you. Choosing a debt solution that doesn’t meet your needs could land you in an even worse situation than you started in, so always speak with a debt adviser about the best option for your circumstances.

Debt management: going it alone

It’s quite possible to set up your own debt management plan, if you’re willing to talk to your lenders and handle everything yourself. You’ll need to draw up your own budget plan – detailing all your income and essential outgoings (like your mortgage/rent and utility bills), and showing your unsecured lenders how much you have left to pay towards your unsecured debts – and then try to come to an agreement as to how much you’ll pay to each of your lenders on a monthly basis.

Usually, your monthly payment to each lender will be worked out on a pro rata basis – i.e. as an even percentage of what is owed to each lender. Take the following example:

You owe £20,000 in total to four different lenders. You owe the lenders £8,000 (40%), £6,000 (30%), £4,000 (20%) and £2,000 (10%) respectively.

However, you can’t afford your existing repayments. You can only afford to repay a total of £200 a month. To split this between your lenders pro rata, you’d offer to pay each lender £80 (40%), £60 (30%), £40 (20%) and £20 (10%) respectively.

This is a simplified example, and it may not always be so easy to arrange. Your lenders don’t have to agree to a debt management plan, and some might ask for higher payments, which can make things difficult.

Debt management: with professional help

If you find the idea of setting up a debt management plan on your own daunting – or even if you’ve tried, but struggled – then letting a professional debt management company take care of things for you could be the best way forward.

A debt management company can negotiate with lenders on your behalf – meaning less time and effort required from you. They’ll also help you with anything else you’re unsure about, like drawing up your budget plan and working out how much to pay to each lender.

Many debt management companies will also be there to handle paperwork, distribute payments, and answer any questions you may have for the duration of your debt management plan.

There may be a charge for this service, but this won’t affect how much you pay each month – you’ll only pay what you can afford, and the fee will come out of this.

Debt management: the drawbacks

Whether you ‘go it alone’ or work with a debt management company, repaying your debts more slowly can affect your credit rating. It can also cost you more in interest – although lenders often agree to freeze or reduce interest and charges while a debt management plan is in progress.

If you have more questions or would like to find out more about debt management this FAQs page may be useful.

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