How does a debt management plan work?
A debt management plan might be right for you if you can no longer afford your unsecured debt repayments each month. Just note that other options are available, so you should talk to an expert who can explain how they all work.
Unsecured debts include things like credit cards, personal loans and overdrafts. You should, however, still be able to commit to lower payments each month until you repay what you owe completely.
A debt management plan doesn’t cover any secured loans, such as a mortgage or homeowner loan secured against your property. Student loans and any money owed to HMRC are also not covered. You'll have to make sure you stay on top of those payments yourself.
A debt management programme basically works by asking your lenders to reduce the amount you pay towards your debts each month to a level you can actually afford. If they agree, you'll then make these new payments over a longer period of time.
As you’re paying less each month for longer, you may pay more in the long run. And, because you are not sticking to the original terms that you borrowed money under, your credit rating will also be affected for up to six years – which can make it more difficult or expensive to get credit.
Why debt management works
Debt management can work because lenders would generally rather get back the full amount you owe them - even if it means waiting for longer. They aren't legally obliged to accept a lower repayment, but if they didn't allow you onto a debt management plan and you ended up being made bankrupt, they might get a lot less back.
For borrowers, it can really relieve the strain of struggling to keep up with multiple unsecured debts each month - and let them repay at a pace they can actually handle.
How we set up your debt management plan
If you feel confident that a debt management plan is the right answer to your situation and about contacting your lenders and negotiating lower payments, you might choose to set up a debt management plan by yourself.
If you'd rather have experts handling your debts, however, a professional debt management company - such as Gregory Pennington - could do it for you. Here are the steps for setting up a debt management plan with us:
- You and your debt advisor will work out exactly how much you can afford to pay towards your debts each month. They'll help you to look at your budget in detail, to ensure that you propose a realistic level of payments. We'll then propose these new payments to your lenders. Although they aren't obliged to, if they agree to this lower amount, you will make one, more manageable, payment per month - to us - and we'll pass on the agreed amounts to each of your lenders, minus our fee. They might also agree to freeze all interest and charges on your debts.
- While your Debt Management Plan is in progress, your Personal Finance Team will do all they can to ensure that it continues going smoothly. If a lender contacts you for any reason, just tell them you are in a debt management programme and ask them to talk to us instead. If your circumstances change or you have any questions, you should contact your Personal Finance Team as soon as possible - if necessary (if your income drops, for example) they may be able to arrange new payments, to keep them affordable.
- You'll continue making your monthly payments until your debts are paid off in full - or until your circumstances improve and you can afford to repay your debts as originally agreed. During your plan you can use Gregory Pennington Online to keep an eye on your progress. You can see where your payments go every month, request a review if your circumstances have changed, order prepaid envelopes or update your details whenever you wish.
If you'd like to know more about debt management, to work out if it's the right choice for you and find out exactly how we would set up your debt management plan, click here.
How long does a debt management plan last for?
A debt management plan basically lasts for as long as you still owe your lenders money. Obviously, if you are on a debt management plan and you're making lower payments than you originally agreed, it will take longer for you to repay what you owe.
It's really important to remember that repaying debt over a longer time means that interest has more time to grow, so you'll end up paying more overall.
Having said that, if we can get the interest and charges frozen, this can make a big difference to the repayment period, as well as the overall cost of repaying your debts.
Even though you may have finished repaying your debt, your credit rating may be affected for up to six years, during which time it may be harder and more expensive for you to get credit.
Who will know about my debt management plan?
A debt management plan is not a legally binding agreement - you won't be put on any sort of register or public record, as would happen if you were declared insolvent.
So strictly speaking, the only people who really need to know are you, your debt management company and your lenders. Of course, if you apply for a loan, a bank account or (in some cases) a job, the company may carry out a credit check - so you should be aware that making lower payments than originally agreed will show up on your credit record for up to six years.
Of course, there may be people in your life who are affected by your debt management plan. You'll be expected to pay most of your disposable income (i.e. the money you have left over after taking care of your essential monthly costs) into your debt management plan: your lenders will only agree to debt management if they can see that you're paying as much as you can.« Back to help centre