Am I eligible for debt management?

8 June 2009

If you are struggling with unmanageable debt, a professional debt management plan could be your best way to clear those debts and get on with your life.

It is an informal arrangement with your lenders. You`d ask a debt management organisation to negotiate with them, asking them to accept reduced monthly payments towards your debts, based on how much you can realistically afford.

However, not everyone is eligible for debt management. And it`s not just a question of being `allowed` to join a debt management plan - someone who isn`t eligible would be unlikely to benefit from it.

How do I know if debt management is right for me?

You may be eligible for debt management if:

• Your debts have become unmanageable.
  
  That is to say, your debt repayments (or other commitments) have become so large (in relation to your income) that you can simply no longer afford to repay your debts under the original terms. In this case, a change in your repayment terms through a debt management plan may be appropriate.
• You feel you would be able to repay your debts in full at a slower pace.
  
  On a debt management plan, your debt management representative will negotiate with your creditors, asking them to accept lower monthly payments towards your debts, on the understanding that this will enable you to repay everything you owe within a reasonable period of time.

Debt management may not be suitable if:

• You can still afford your current repayments.
  
  A debt management plan is only available to people who simply can`t afford their existing repayment arrangements. Since it will appear on your credit history - and since repaying your debts more slowly will delay the day you`re debt-free, and may increase the overall cost - joining a debt management plan is not worthwhile unless you are having serious difficulties repaying your debts.
  
  Besides, your lenders will not accept reduced payments if they know that you can afford your existing terms.
• You don`t think you`ll ever be able to repay your debts in full.
  
  A debt management plan is aimed at helping you repay all of your debts at a slower pace, but still within a reasonable timeframe. If you have any reason to believe that you won`t be able to repay your debts in full, then you may want to consider a different debt solution, such as an IVA (Individual Voluntary Arrangement).
• You don`t have a regular, stable income.
  
  A debt management plan requires regular repayments. If your income is likely to change dramatically from one month to the next, you won`t be able to commit to making those payments.

Always speak to a professional debt adviser before deciding on any debt solution. Debt management is not for everyone - and a debt adviser can help you to decide which debt solution best meets your individual needs.

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