Debt management: a step-by-step guide
If you're looking for debt help, it's likely that you've heard about debt management plans. These plans are designed to lower your monthly unsecured debt repayments to an amount you can afford to pay, as long as your lenders agree to accept. So it should mean it takes you longer to get out of debt, but you can afford your payments again. But you might have wondered - what exactly happens during a debt management plan?
This guide will walk you through the debt management process for Gregory Pennington customers. Gregory Pennington have given thousands of people expert debt advice and professional debt help since we were founded in 1993.
Step 1: Find out if you qualify for a debt management plan
There are a number of debt solutions available, so the only way you can know for sure whether you qualify for debt management - and it's the right option for you - is to talk to a debt professional.
Answering the following questions can, however, give you a good idea:
- Do you have unsecured debt payments each month that you can't afford?
- Could you still commit to (lower) monthly payments?
- Do you think you'll be able to repay what you owe in full in a realistic amount of time?
If you've answered 'yes' to all three, it's likely you're eligible for a debt management plan.
To find out whether you might qualify for debt management - or whether a different solution might be more suitable - fill out the form on this page.
Step 2: Meet your Personal Finance Team
Everyone who starts a Debt Management Plan through Gregory Pennington will have their own Personal Finance Team. They will be your point of contact throughout the whole Debt Management process.
As well as managing your account, they will be there to answer any of your questions and make sure your Debt Management plan is going smoothly.
Step 3: Documents for Debt Management
You'll need to send us some documents and details to help your Personal Finance Team work out how much you should pay on your Debt Management Plan, so we can negotiate with your lenders.
- Proof of income - such as wage slips - so we know how much is coming into your account every month.
- Bank statement - so we can see evidence of all your monthly commitments (such as mortgage and bill payments).
- Reference numbers for the debts being included in your debt management plan. If you don't have any evidence of these, you may need to order a copy of your credit report.
If you'd like to know more about the documents we'll need from you - or why we need them - click here.
Step 4: Debt management budget
The point of debt management is to make your monthly unsecured debt repayments affordable again. So when your plan is being set up, it's important to check your budget carefully.
Your advisor will help you to work out how much you can pay towards your lenders each month - and make sure you're not paying too much (or too little). They'll help you look over your budget, like your income and essential expenditure (such as your mortgage, bills and food).
They'll then help you work out how much should go towards your unsecured debts out of what's left over (i.e. your 'disposable income').
If you're not sure how your monthly budget works out, click here to use our handy budget calculator.
Step 5: Negotiating with your lenders
If you had set up your debt management plan on your own, you would then have to propose these new payments to your lenders yourself.
On a debt management plan with Gregory Pennington, we'll do this for you. We'll present your budget (and back it up with evidence) to show your lenders how much you can realistically afford each month. If your lenders accept these new payments, your debt management plan will go ahead. Your lenders may also agree to freeze any interest or charges on your debts (bear in mind that if they don't, paying back debts over a longer period of time means that you'll be paying interest for longer - meaning you'll pay more). You should also be aware that your credit rating will be affected for up to six years, since you're not sticking to your original payments.
Your lenders are likely to accept your debt management proposal if they can see that you can't realistically afford to pay them any more, and that debt management really looks like the best way to get the money repaid in full. So, although they don't legally have to accept the lower repayments you're offering to make, lenders would typically rather get all of their money back - even if it's over a longer period of time - than try to make you pay more than you can afford from month to month.
For more detail about negotiating with your lenders, click here.
Step 6: Debt management payments
If your debt management plan goes ahead, you'll start making your new, more manageable, monthly payments. You'll only have to make one payment to Gregory Pennington each month, and that payment will be shared out fairly among your lenders. We do charge a fee for our services, but this will be taken out of your single payment - you won't have to pay more than you can realistically afford each month. To find out more about our fees, click here.
You'll continue making these new payments each month until all of your debts are totally repaid - or until your circumstances change.
Note that because you are paying less each month, and for longer, your debts may end up costing you more.
What happens if your circumstances change?
Your Personal Finance Team with review your Debt Management Plan on a regular basis, to make sure that everything is still going well – and that it is still the best debt solution for your needs.
If your circumstances change: for example, if your income decreases (or increases), you should inform a member of your Finance Team. They may be able to negotiate new terms with your lenders that will accommodate these changes.
- If you find you can't afford your new payments because your circumstances have changed, your lenders may let you lower your payments if it looks like the best way of making your debt management plan a success. This is not guaranteed even if they agreed to the original lower repayment figure, but we will negotiate with them on your behalf.
- If you run into some short-term cash-flow problems, they may let you take a short 'payment holiday'. You can then resume your payments when you're back on your feet - and basically extend your debt management plan by a few months.
- If your income increases, you may be able to afford larger payments, so you can get out of debt more quickly.
Bear in mind that a serious change in your circumstances may mean that a Debt Management Plan is no longer right for you at all. In this case, your Personal Finance Team will talk you through your options.
Gregory Pennington Online
As long as your debt management plan continues, you'll be able to access all the information about your debt management plan at Gregory Pennington Online.
Here, you can:
- Keep track of payments to your lenders, and see how much debt you have remaining
- Order prepaid envelopes to forward your lenders' letters to your Personal Finance Team
- Check which of your lenders have frozen interest and charges on your debts
- Check any messages you might have
- Change your details.