What is debt management

 

Debt management is usually a service offered by third parties for bespoking repayment arrangements in relation to unsecured debt. The whole process is normally called upon when debts become out of control for individuals with frequent late payments etc. The third party managing the debt looks at an individuals circumstances and debts, assesses their income and budget etc and subsequently re-negotiates interest rates and repyament terms on behalf of the individual. Debt management can have high success rates for individuals in difficult circumstances or people who get overwhelmed with debts as the creditors such as credit card companies trust the debt management companies and are aware that re-offering interest rate and payment terms will more then likely make repayments more successful.

 

As mentioned above debt management is used in conjunction with unsecured debts and unsecured debt consists of credit cards, loans and store cards etc. Secured debt such as a mortgages or car finance etc do not often fall under the remit of the original debt management plan definition, however secured debt can be approached in the same manner.

 

Taking on debt management yourself

 

So you think you are qualified enough to take debt management on yourself and sort our your own situation? Well we will endeavour to empower you with knowledge to assist you, but we do really recommend obtaining professional advice.

 

It is worth noting, you can look to debt management yourself and contact creditors etc seeking re-negotation of rates etc, however (a) some creditors will not give preferrential rates to individuals, whereas they have relationships with debt management companies and do offer such terms to them and (b) debt management is complex, would you look to represent yourself in court? The answer is probably no. Re-negotation of debt becomes complicated quickly and it is very much recommended to seek professional assistance.

 

Whether you still wish to represent yourself and re-arrange terms, or whether you want to know on what basis a debt management company will work, we will now comment on the basics for you.

 

Make sure you priortise your urgent debts. Your urgent debts are referenced as priority debts and these debts consist of things like rent, mortgage and council tax. All these creditors are named priority creditors. Other type of debts such as loans, credit cards etc are called non-priority debts. As you would imagine, you need to always look to pay off your priority creditors and debts as the first port of call.

 

The most common priority debts will now be listed and the consequences of not settling them, once you read the consequences of non settlement, hopefully it will start to become easy to see why they are named priority debts.

 

Mortgage or rent arrears: Written into mortgage and rent leases will of course be the option for the bank or landlord to evict/repossess if non payment continues, this of course would be a stressful occurrence.

 

Utility arrears: Not surprisingly if you don't keep up with your gas or electricity payments then your providing company can and will disconnect you, and with modern life relying more and more on such fuels, life will become very difficult without them.

 

Maintenance payments: These are of course paid to a partner following a divorce or consist of child support payments. If you dont keep up these payments, then courts can instruct bailiffs to come round and/or you can also serve prison time.

 

Income tax/VAT arrears: I don't think most people will be surprised that the 'government' in general is often a priority creditor and therefore no payment of tax is serious and consequences include prison.

 

TV licence: Yes that small monthly or yearly payment (although the payment is getting noticeably larger each year), if continued in a non paying pattern can invoke fines.

 

Court fines (including traffic offences): As per maintenance payments, if unpaid then expect the bailiffs or jail time.

 

It may well be that you don't currently have enough to re-pay all your priority debts listed above, if so you will need to think very carefully over which payments to prioritise, neglecting some debts in favour of others may come with surprising consequences.

 

The good news is that we live in tough economic conditions and debt is on the rise and therefore most priority creditors listed above will be aware of tough circumstances and understand.

 

After your priority debts, it is time to assess your non-priority debts all of which share similar consequences of non-payment, e.g. Credit-cards, loans, store cards, insurance credit agreement. Non payment of these will not affect your possessions etc in the first instance, however of course they are credit agreements and therefore no payment will affect credit rating so should not be taken lightly.

 

Assessing your circumstances

 

Once you know what type of debts you have and what the consequences are of non payment etc, it is time for you to assess your own circumstances.

 

You need to look at your income, your way of life, your possessions…. Then looking and taking these into consideration, you need to look for opportunity. You need to do this to show real commitment to your creditors. This is because (a) doing so can free up money (e.g. By cutting back in certain social activitues) and (b) this shows your creditors that you are taking your situation seriously, which in turn will make them more likely to provide grace.

 

 

 

 

Contacting your creditors and re-negotation

 

The most important part of the process. Once you have an understanding of your circumstances in general, this is where you contact your creditors and look for options. Once you have explored the options, you then need to assess the options and ultimately take action and agree to revised arrangements etc.

 

This last step sounds simple doesn't it? But it is the most complex and the most important and where a professional debt management company can provide you with real benefits.

 

Unless you have an established background in finance or law etc, then it is almost undoubtfully in your best interests to let a professional handle your circumstances.

 

 

 

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