A 2021 Guide to Debt Management Plans
Cashfloat presents the ultimate 2021 guide to debt management plans. If you are struggling with debt or know someone who is, you may have heard of debt management plans. Debt management plans are a common solution to debt, used in the UK. We have put together this guide to help answer the most commonly asked questions about them.
Tackle Your Debt Problem
Debt is a complex problem to face, and finding a way to escape from it can seem difficult. Many people who are in debt feel as though they will never escape from the situation. However, no debt problem is unsolvable and even serious debt problems can be resolved more easily than many people think. People who can’t deal with a debt by budgeting themselves and sticking to their normal payments have to find an alternative way to solve the problem. These are known as debt solutions. The first step in solving this kind of debt problem is working out which debt solution is right for you.
There are various debt solutions available, and many you will have heard of, such as individual voluntary arrangements (IVAs) or debt relief orders. Debt management plans are another available solution and are one of the most commonly used ways to tackle debt in the UK. If you can use a debt management plan to solve your debt problem, it will be likely to relieve you of the stress of living in debt, lessen the pressure that creditors put on you to repay money and get your financial life back on track. As useful as they are, debt management plans can be complicated. This guide should help to clear up some of the confusion which surrounds them.
As you will find out in this guide, in the UK, debt charities provide free and professional help for people who are struggling with debt. Debt management plans are usually organised on behalf of the person in debt by an outside organisation. Debt charities are able to provide this help for free and are well experienced in doing so. These charities can lead people the whole way through their recovery from debt. As well as organising debt management plans and other debt solutions, these charities also offer in-depth advice to people who are struggling with debt.Avoid Debt Management Companies
As well as charities that offer debt management plans, other debt solutions and debt advice, you will probably find that there are many fee-charging debt management companies that offer to do the same. It is always better to go with a free debt charity than a fee-charging debt management company. These companies exist to make profit, and you will have to pay for their services, meaning that less of your money will go towards paying off your debts. This will make your debts more expensive and take longer for you to pay them off.
What is a Debt Management Plan?
A debt management plan helps people struggling with debt pay off what they owe in an organised and manageable way. People who have money available to pay towards their debts, but not enough to keep to the payments that they should be making, can enter into a debt management plan. Under a debt management plan, you will repay your debts in monthly amounts lower than the minimum amounts that you agreed to repay when you originally borrowed money.
In simple terms, debt management plans are arranged by:
- Gathering a list together of all a person’s creditors and calculating their outstanding debt
- Working out how much that person can contribute to their debts, by looking at their income and expenditure
- Negotiating with the person’s creditors to try and get them to accept lower monthly payments. On top of this, creditors are usually also asked to stop charging interest and fees while the debt management plan is in place to stop the debt from being too difficult to repay
- After payments have been agreed, the person who is in debt simply then has to meet the lower monthly payments that they have agreed to make until their debt is cleared.
While it may seem simple, there can be a lot of effort involved in creating a debt management plan. There are also many considerations to make before you start one. There can be issues with the ongoing management, and there is a level of uncertainty for people about what will happen to them after their debt management plan has finished.
In this guide, we have tried to provide answers to the most commonly asked questions.
What’s in this Guide?
Cashfloat is a UK direct lender offering payday loans under the new FCA regulations. Cashfloat try to help their customers as much as possible without putting them under further financial strain. We understand that sometimes life can take us on a different journey than we originally planned. Debt is often caused by misfortune, rather than by reckless spending. Whether it’s a sudden big financial expense or a stroke of bad luck, people often find themselves in debt when they have tried to be as careful as possible. Whatever the cause of a person’s debt, it is important that they find a solution to the problem.
In our 2021 Guide to Debt Management Plans, you will:
- Find out how debt management plans work
- Find out if a debt management plan could help you with a debt problem
- Learn who the best people are to go to for help
- Find out what things you should avoid doing
- Discover the things you can do to help yourself while a debt management plan is in place
- Learn what will happen after a debt management plan has finished
Alternative Debt Solutions
As we have already mentioned, debt management plans are just one way that people who can’t pay their debts off as they planned can find a solution to the problem. They are popular because of their informal nature and because they can allow people to clear their debts in a manageable way. However, other debt solutions are available and it may be that an alternative approach is more appropriate. A consultation with a professional and impartial debt advisor will usually help you to find the best way to tackle your debt problem. Bankruptcy and other, more serious debt solutions, are only applicable in more serious cases and these debt solutions are often not as difficult as people imagine. It is always best to check that you are taking the right approach before you begin a debt solution.
Here are some other possible debt solutions:
Note – there are even more possible solutions to debt than we have mentioned here. This is a selection of the more commonly used ones.
Individual Voluntary Arrangement
Individual voluntary arrangements (IVAs) are similar to debt management plans, but they are a formal and legally binding agreement. Under an IVA you will agree to pay off all or part of your debts at a rate that you can afford, usually over five or six years. After this time, your debts will be cleared and you will be debt-free. In Chapter 16 of this guide, we have provided a comparison on IVAs and debt management plans.
Debt Relief Order
A debt relief order is a form of insolvency which can allow you to wipe off any debts that you cannot afford to repay in a reasonable amount of time. A debt relief order can immediately prevent you from having to repay your debts. However, there are eligibility criteria to receive one and consequences that come with them as well.
Debt Arrangement Scheme
Debt arrangement schemes are only available to people in Scotland. These are similar to debt management plans, but are a statutory debt management tool overseen by the Scottish government. These have the added benefit that, when you begin one, your creditors are obliged to freeze any interest or charges on your account, stop taking further court or enforcement action and stop sending you letters asking for payment.
Some people, who can do so, choose to remortgage to pay off their debts. This can mean changing their existing mortgage or switching to a completely new mortgage provider. While this may seem like a simple solution, it is important to discuss this first with a professional and impartial debt advisor.
People who have assets available may choose to sell them in order to clear their debts. Money held in a savings account, vehicles, property or land can all be used to clear a debt.
Personal bankruptcy is usually used by people who have little chance of repaying their debts in a reasonable amount of time and whose circumstances are unlikely to change. Bankruptcy is only necessary in extreme cases and is often not as difficult as people expect. The process of becoming bankrupt is different in Scotland, England, Wales and Northern Ireland.