Debt problems often arise from reduced income, trouble budgeting or too many unsecured debts. Unfortunately, most people who suffer from debt problems don’t realise that some simple debt advice can help them get out of debt quickly!

What is debt management?

In a literal sense it means “the management of your debts”, but debt management involves simplifying your finances and making debts more affordable for you. This could be anything from budgeting correctly to prioritising debt payments, or using an increasingly popular solution – the Debt Management Plan (DMP).

DMPs are for people who are struggling to repay their consumer debts (such as overdrafts, personal loans, store cards and credit card debts), or for people who are continually going further in to debt each month. A DMP enables all of your unsecured debts to be gathered into one monthly payment – which makes finances simpler. Repayments are then rescheduled over a longer period of time to make them more affordable.

The single payment that is made each month is paid to your debt help provider, who then distributes this on your behalf to creditors on a pro-rata basis, minus any costs. This means that the more of your debt that the creditor is owed, the more they will receive of your payment.

Because a DMP is a non-legal agreement, there are no legal fees to pay and you do not have to put your property up as security. The other advantage of a DMP is that they are incredibly flexible and can be altered should your financial situation change. This means that if you find your income dropping, the monthly payment can be reduced accordingly. Likewise, if your income increases your monthly payment can reflect this – so you could end up repaying debts quicker. The flexibility of a DMP also means that if you no longer have debt problems you can stop using it altogether – so you can use the DMP to suit your circumstances. In short, you are put back in control of your finances.

The most important thing when considering a DMP is that you first seek impartial debt advice to determine whether one is suitable for your situation. If you decide to go ahead, your expert adviser will go over you finances with you to fully understand the level of debt that you are in. From there they may be able to offer you some initial budgeting and debt advice that could alleviate your problems. They may also be able to advise you on whether you are spending too much money or if there are ways to boost your disposable income – as you may not be receiving all of the benefits or tax credits that you are entitled to.

After this assessment, your adviser will be able to work out your disposable income (how much money you have at the end of every month to pay off your outstanding balances). This is done by working out your total expenditure for each month including priority payments – like rent/mortgage, travel, food and utility bills – then subtracting it from your total monthly income. The remainder is called your “disposable income” and is how much you have to pay off unsecured debts. This will be distributed to your creditors by your adviser; all you have to do is make a single monthly payment. They will also try and have interest and charges reduced or frozen.

There are other professional debt solutions available, depending on how much debt a person has and their level of disposable income available to pay towards repaying debts. One such solution is an IVA. It is similar to a DMP because your unsecured balances are put together and paid off in one single monthly payment, but it is different in that it is paid off over a fixed period of time (usually over 5 years). Once the IVA term is complete all of your remaining unsecured debts are written off. A Trust Deed is similar but is only for those people living in Scotland. Trust Deeds are generally repaid over a three year period.

With all of these solutions, creditors should stop sending demand letters and calling at inconvenient times to chase debts, as all contact will be done via your debt help provider.

Before deciding on the appropriate debt solution for you it is essential that you seek impartial debt and IVA advice from a reputable provider, such as Chiltern, The Debt People or Hamilton Locke. This is so the solution you decide upon is the best one for you and helps you to get out of debt in the shortest time possible.