Entering into a debt management plan can be a big help if you’ve been struggling with your debts – but it’ll have a significant impact on your finances. One part of this is that it will have an effect on your ability to access credit in the future.
Quick guide to debt management plans
A debt management plan is an informal arrangement with your lenders. It involves making reduced monthly repayments on your debts, based on the maximum you can afford, either until your debts have been paid off, or until your situation has improved.
Many people also reach an agreement with their lenders for a freeze on interest and other charges, which will stop their debts from getting bigger.
A debt management plan can be arranged by the borrower themselves, but because of the time and effort that’s often involved, some people prefer to arrange theirs through a professional company, who can do most of the work on the borrower’s behalf.
Will it affect my chances of getting credit?
A debt management plan will require you to pay as much as you can towards your debts – and your lenders are highly unlikely to accept the terms if you will be borrowing more money, as you are already unable to repay what you’ve already borrowed.
However, if you already have a mortgage and are coming to the end of your existing deal, it will probably make financial sense to find a remortgage deal, and your lenders are likely to accept this.
Even if you are permitted to borrow money, the impact on your credit rating will make it difficult. This doesn’t necessarily mean you won’t be able to get credit, though – it may just mean some lenders will choose not to lend to you, or they may offer you deals with a higher interest rate.
Melanie Taylor is associated with Gregory Pennington. For more information about debt management, debt advice, Individual Voluntary Arrangements (IVAs), basic bank accounts with a debit card facility, loans and remortgages, please visit GregoryPennington.com.
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