Debt can be quite overwhelming – especially if unexpected changes to your personal circumstances have an impact on your income or if you have to end up paying out more than you are able to on a regular basis.
Many of us have been there – you can only tighten your belt so many times before you’re faced with a spiral of debt. Fortunately debt management programmes can offer a way of controlling debt – especially if you are facing endless payment demands.
Debt management helps you to manage your debt more effectively and gives you the breathing space you need to repay outstanding debts and get your spending back under control.
Whilst debt consolidation is probably the best known debt management plan there are other types of programmes, including a standard debt management plan and an Individual Voluntary Agreement. Let’s take a few minutes to look at the three different plans available and the merits of each:
A debt management specialist will work with you to take an in-depth look at what money you owe and who you owe money to. They will then talk with the companies you owe money to, and try to get them to freeze the mounting interest payments so that your debt doesn’t worsen. They will then ask the creditors to accept regular, sometimes smaller repayments (in some cases they may even be able to write off some of the debt).
Debt management specialists will handle all letters and demands for payment from your creditors, which can also really help to relieve the stress of debt.
The debt expert will also help you to work out what your monthly income is and what you can reasonably allow for living expenses, to show what you can realistically afford to repay. In addition to this they will help you to allocate that money between your creditors. The idea is that you will only make one affordable payment each month, and the debt management company will use that payment to make payments to various creditors on your behalf.
It should be noted that there are no guarantees that the firm you owe money to will agree to freeze interest rates or reduce your regular payments, let alone write off any of your debt. In some instances companies may still charge additional interest or penalty fees.
Whilst your monthly payments may reduce, you could end up paying a larger total amount over a longer period of time, in order to make it affordable for you.
Debt consolidation works in a very similar way to a debt management plan. The emphasis is on “consolidating” all your existing debt into one manageable repayment plan. This is known as a “debt consolidation loan” - this includes all debts plus and early repayment fees you may incur. So all your existing debt is essentially paid by the debt consolidation firm so your only obligation is to pay them a manageable lump sum every month.
Individual Voluntary Agreement
In addition to these two there is something known as an “Individual Voluntary Agreement” (IVA) that is a more formal acknowledgement of your financial difficulties, however, it works in the same way as a standard debt management plan.
An IVA is essentially a legal agreement between the creditors and yourself. You basically agree to repay the debt over a set period of time (around 5 years on average). By the end of that agreed period your creditors will accept that they cannot obtain any further money from you – even if you haven’t repaid the debt in full.
If you are struggling with debt its worth looking at what your options are and, if necessary, look at a debt management / consolidation plan to help you meet the demands of your creditors.