Debt Management is one of the options available to sort your finances

Debt Management is a plan to reduce payments by consolidating debts to arrange one affordable monthly repayment

Debt Management Plan is not a loan. It is a plan for people who are struggling to meet monthly contractual repayments.

Debt Management Plan is prepared by reviewing the current financial situation and reasonable payments are calculated on the ability to repay the debts without getting into further financial difficulties. The unsecured debts are consolidated into one single affordable monthly repayment on a pro-rata basis. Obviously the period of time to clear the debts will be longer than previously arranged with your creditors due to reduce payments. More you can afford to pay, quicker your debt will be settled. Please ensure that while trying to clear your debt, you do not forget to maintain to pay your main and major commitments such as mortgage, rent, car finance, utility bills and Council Tax.

A Financial Statement is prepared from your income and expenditure information. The creditors will also need to be informed why you are facing financial difficulties. All the creditors are requested to stop interest and charges to allow you to repay your debts as quickly as possible. Once the creditors are made aware of your difficulties, most creditors will withhold taking legal action or any other action to recover the debt provided you keep and maintain regular payments. The arrangement can be defaulted if payment is not maintained or reduced. Most arrangement is valid and reviewed after every six months. After every six month your financial situation need to be reviewed to check if there are any changes in your financial situation. Most creditors expect increase in payment after certain period of time, however if the circumstances changes from bad to worse, most creditors will look into the situation sympathetically and may consider revised offers.

Please note that all creditors do not stop interest and charges. Some of the creditors will continue to add interest and charges and will not consider to stop. In such cases your debts will continue to increase until the account is passed over or sold to a collection agency. There are also other charges that you may need to look into, such as certain type of current account where charges are applied. Change the account to avoid paying monthly charges. Some banks continue to add interest and charges on unauthorised overdraft. These charges in most cases cannot be stopped. You may have Payment Protection Insurance, please check with your creditor to make sure this insurance is valid while your are on debt management programme. If your offer of payment meets the contractual payment, the account will be treated normal. The interest and charges will apply at a normal rate and will not be stopped.

Please remember that the Debt Management Plan is informal and creditors are not obliged to agree with the proposal presented to them and is not legally binding. The creditors in most cases accept debt management plan and suspend or reduce interest and charges where possible and accept reduce payments. The Debt Management Plan works best when you take full responsibilities and ensure that the payments are made regularly and on time.

While you are on debt management programme, and if you are in position to settle your debt in full, creditors will consider early settlement. Some creditors may even give a discount to settle the account earlier where as some creditors will demand full outstanding balance and will include interest and charges previously held. Click here more information on Full and Final Settlement.

There are many debt management companies in the UK. Like everything in life, you will find reputable and dubious companies offering debt solution. It is always helpful to do a research before appointing the company. Ask you friends and family members or checkout of any reports of such companies reported in the media.

The vulnerable people get attracted by cleverly painted picture by some debt management companies with slogan such as your interest and charges will be frozen and your payments will reduced to one affordable monthly payment. This is always not true due to the following reasons:

01. It is not possible to freeze interest and charges on all accounts with all creditors.

02. Some creditors will accept reduce payments but will not stop interest and charges. In cases where interest and charges are more than the payment, the balance will keep increasing every month. You will end up owing more than the actual amount for unforeseeable future until the account is either sold or passed to a collection agency. If the monthly payment is increased the account will not be passed out or sold. If the payment is not increased the balance will increasing drastically. Therefore please note that all creditors are not willing to accept pro rata payment along with the other creditors. You may want to adjust your payments.

03. There are banks who will not stop interest and charges and will continue to apply. Again if interest and charges are more than the payment, then the balance will keep increasing. To avoid the balance increasing, you will have to increase the payments. Account may be passed out to collection agency but interest and charges will continue to apply and will not be stopped.

04. Debt Managements companies will not be able to discuss the accounts with most bank branches. The branches in most cases will continue to apply normal interest and charges while the account is under branch control. Once you are on Debt Management programme, your account is passed on to their recoveries or collection department.

05. Some loan companies will continue to charge normal rate of interest even when they obtain county court judgment.

06. There are other companies who will continue to add interest on the account but will refund after receiving six month of regular payments.

07. Some banks will accept reduced payments and will stop interest and charges but are so strict that they will expect to reach the payment within the due date. If payment is not received within the due date and if the payment is not made as arranged then they will immediately add interest and charges to the account. To stop the interest and charges again, the arrangement will have to be reset once more.

08. Some credit card companies will stop interest and charges for a fix period of time. Once the period is over, interest will once again commence; this may be at a reduced or standard rate.

09. Some credit card companies will reject the reduce offer of payment if the offer of payment is near enough to contractual payment. They will expect the contractual payments and will continue to add interest and charges.

10. Some credit card companies will never accept reduced payment if you spend on the account just after joining the debt management programme. You will have to make contractual payment. Interest and charges will continue to apply and will not be stopped.

11. Some catalogues companies do not stop interest while you remain employed.

12. Interest on some of the loans accounts cannot be stopped due to terms and conditions in the way the loan was obtained. The interest will continue to apply until the account is passed out to other collection agency.

13. There are some creditors who will charge set up fee to accept lower monthly payment. This may be one off charge provided the payment is not reduced. If the payment is reduced to will charge further arrangement fee. Your existing balance will increase.

14. The interest and charges may not continue if the account is passed out or sold to other collection agency. However in some cases where the agency is acting on behalf of the creditor, interest and charges still continue to apply in the back ground and all the interest and charges may be added back when the account is returned to the creditor.

15. The fee charging company will charge management fees. This is your disposal income. The fees are kept by the the Debt Management companies for two or even more months. Most of the Debt Management companies start paying to your creditors after you have made the third payment.

If you do decide to adopt this method to become debt free, please make sure that you keep an up to date records at all times of the payments and the monthly balance from each creditor. You also need to get the balances from your debt management company to make sure that they are also working on the same balance as yours and your creditor's. You have to be vigilant at all times to make sure that your debt is reducing each month. is not authorised to give advice under the Financial Services and Markets Act 2000. The general information and material provided and published on this website is for interest, understanding and for common knowledge purpose only. The details provided should not be taken as any kind of advice and cannot and should not be used to solve any kind of financial problems. You must take proper advice from authorised firm or financial advisor. We do not recommend or endorse any kind investment, advisor, product or services. We do not offer or imply any kind of advice, financial or legal. It is your responsibility to take appropriate action suitable to your needs.