Introduction to debt management
The best way to start managing your debts is to face up to them. Make a list of all the companies you owe money to, and how much your monthly payments are. You should then try to prioritise your repayments, concentrating first on those which could affect the roof over your head.
You should also look to reduce the amount of interest you pay wherever possible. If, for example, you have credit cards charging a high annual percentage rate (APR), consider moving the balances held on these cards onto balance transfer cards offering an introductory 0% period for several months.
If you are still finding your debt payments unaffordable, the next step is to try and come to an arrangement with your creditors. Speak to them as soon as possible and let them know you are having problems – you may be able to negotiate lower payments over a longer period of time.
If your creditors won’t help, it’s time to seek professional advice. Several charities offer free debt advice, including the Money Advice Trust and StepChange (formerly the Consumer Credit Counselling Service).
They may be able to devise a Debt Management Plan on your behalf, so that you pay off what you owe without getting further into financial difficulty. You make one monthly payment to them, which they then divide between your creditors. This gives you peace of mind that your debts are being paid off in an organised fashion, and shows your creditors that you are committed to clearing what you owe.
There are debt management companies which also offer these kinds of plans, but there will be fees involved.
Alternative options to Debt Management Plans
A Debt Management Plan can help you regain control of your finances, but if you’ve gone beyond this point and cannot use this kind of plan to resolve your problems, you may need to consider alternative options.
These include an Individual Voluntary Arrangement (IVA), a legally-binding arrangement where you agree in a set monthly amount to repay your creditors over a five or six year period, or bankruptcy, where you must sell all of your assets, including your home, to pay off your debts. Bankruptcy only lasts for a year, but it will stay on your credit records for several years after this, making it virtually impossible to obtain credit.
Neither of these options should be entered into lightly, so always seek advice first to make sure you choose the right debt management solution to suit your needs.