Owing money to a number of companies creates a major headache for anyone. Debtors are not just harassed by one creditor for payment, they all keep calling. A debt management plan alleviates this problem as it is all taken care of by an appointed debt advisor.
What is a Debt Management Plan?
A debt management plan is an informal arrangement whereby one pays an agreed monthly sum to a debt management company. After taking their 15% fee, the remainder is divided amongst creditors on a pro rata basis. The debt management fee will vary depending upon which company is used.
Minimum Criteria for a Debt Management Plan
- A minimum of 3 creditors.
- After taking into account all expenses, a debtor must be in a position to be able to contribute a minimum of £100 towards the arrangement.
Gather Income & Expenditure Figures
In order to assist the debt advisor it is essential that a breakdown of income and expenditure figures are put together.
- Name and address of the creditor.
- Type of agreement - unsecured loan, credit card, store card or overdraft.
- Amount of debt outstanding.
- How much can be afforded by the debtor each month.
If struggling to find enough money to proceed with a debt management plan it can be useful to identify ways to save money. Making a few lifestyle alterations will help with this, especially as the current lifestyle is the source of the debt problems. If reducing outgoings isn't an option, try to earn extra income by doing some additional work.
Call the Debt Advisory Company
All the necessary information has been gathered and can be presented to the new debt advisor. They will be able to advise whether proceeding with a debt management plan is feasible. Should this debt free solution be right for you, they will send out a full information pack.
Completing the Information Pack
It is now necessary to provide more detailed information to the debt advisor, including:
- Full name and address details, including a signed declaration that one wishes to proceed.
- A breakdown of income and expenditures.
- More complete information on creditors, including the names and addresses, original loan amount, how much has been paid, how much is outstanding and current monthly amount.
Sending Offer Letters to Creditors
Once the above information has been provided, the debt advisor will put together a full breakdown of everything along with an offer letter for each creditor. Creditors will need to sign and agree to the debt free plan before it can be proceeded with.
Getting Creditor Approval for a Debt Management Plan
Provided that creditors are willing to proceed all that remains to be done is to set up the standing order. This should have been provided with the information pack so that the plan can be proceeded with as quickly as possible.
The debt management plan is now complete and the stress of dealing directly with creditors has now ended. All of the payments and associated administration are taken care of by the appointed debt advisor. If in a position to increase monthly payments to reduce debt faster, this can be arranged at any time.
Sources
"Free debt management plans." Payplan.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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