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Why Opt for a Debt Management Plan?
A debt management plan is meant for people who have debt. Not only do they have debt, but they are finding that their debt is unmanageable. This means that they are failing to make repayments or only paying part of the amount required.
There are several avenues that a debtor can follow when faced with overwhelming debt. One of the most obvious ones is bankruptcy. This is a very undesirable and intrusive process which carries a social stigma. Bankruptcy is also published so it could cause the debtor extreme embarrassment and social discomfort. It is also a very expensive process to embark on and be quite lengthy as it is a legal process administered by solicitors and the courts.
Another avenue for overwhelmed debtors is to go the route of an Individual Voluntary Agreement (IVA). The IVA is a legal process and can come from a court order. It is valid for a fixed period of time and may affect your credit rating and history. The IVA can be administered either by a solicitor that specialises in insolvency (IVA is part of an insolvency process), or an accredited debt management advisor. In order to get a legal IVA, all the creditors involved have to agree to its terms and conditions.
If you live in Scotland, you have the option of entering into Protected Trust Deeds. The Protected Trust Deeds are also part of a legal process and is set for a fixed period of time. However, the time period for which they are fixed is shorter than that of the IVA. Here only two-thirds of the creditors involved have to agree to the terms and conditions.
Finally, there is an informal route that is less invasive and embarrassing. The Debt Management Plan is an informal agreement between the debtor and all his / her creditors. Of course there must be a large amount of debt that has to be repaid (e.g. £5,000) to two or more creditors. It involves a careful analysis of your financial situation and the amount of money you have available for living expenses and for debt repayment.
The debt management plan is easy to draft as it is not a legal process and solicitors and courts are not involved. You are able to draft the agreement yourself, or obtain help and advice from an accredited debt advisor.
The benefits of this route are that you may be able to freeze the interest and charges on the accounts that you want to pay off. This will, of course, depend entirely on the creditor. It is a very personal process so the terms can be tailored to your individual circumstances. If you use a debt advisor, you need no longer deal with the creditors. The advisor will deal with them on your behalf. There is also no restriction as to the time period that you use to pay your debt off.
This solution is possibly the first avenue to explore.
