Should I go for a debt management plan?

When it comes to dealing with unmanageable debts, the right debt solution for you will depend on how serious your problem is. If you can't stay on top of your unsecured debt repayments as well as your other costs, you may be eligible for a debt management plan, as long as you can still afford to repay your debts in full within a reasonable period of time.

A debt management plan is an agreement with your unsecured lenders that works by reducing your unsecured debt repayments, making them affordable again (while ensuring that they fit around your other essential costs).

How do I go about applying?

There are two main ways of starting a debt management plan. Some people prefer to 'go it alone' and get in touch with their unsecured lenders directly. This involves negotiating with your creditors individually, asking them to accept reduced repayments.

Some people have a lot of success with this, but it can get confusing if one or more lenders ask for more than a proportionate share of what you can afford to pay each month - or refuse to accept any reduction at all in your payments. For some, the process of arranging a debt management plan can be time-consuming and stressful.

If you'd prefer to let someone else do the work for you, the other option is with a debt management company. They will firstly assess whether a debt management plan is right for you, and if it is they'll talk to your creditors on your behalf - if you want them to.

If your lenders accept the arrangement, most debt management companies will provide an ongoing service, looking after the running of your debt management plan, and answering any queries you may have in that time. They will also carry out regular reviews of your circumstances to make sure the debt management plan is still appropriate.

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

As a general rule, debt management plans are only suitable for people who can't afford their unsecured debt repayments, but can still afford to repay everything in full by making smaller repayments. There are a number of factors involved, though, so you should always discuss your options with a debt adviser first of all.

Also remember the downsides - for example, failing to make the repayments you originally agreed will affect your credit rating. And repaying a debt more slowly can cost you more in the long run, due to interest (although lenders often agree to freeze interest while someone's on a debt management plan).

Take our free debt test to find out whether a debt management plan could be suitable for your circumstances.