Establishing A Debt Management Program Guide

It is much easier to get into debt than get out of it. People can spend money day and night but when it comes to paying the bills, there may not be enough funds.

As bills and loan payments become late and go into arrears, they are classified as debt. Establishing a debt management program is one way to handle the situation. If UK consumers are unable to handle this process themselves, they can consult with a debt management program to handle the process for them.

To see if you qualify for a debt management program, we need to establish your current financial situation and check your changes in circumstances. We are confident we can help you with a debt management program and guide you through the process and the best options for you. All our advice is strictly private and confidential.

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Preliminary Steps In Creating A Basic Debt Management Program

If they have a small amount of debt, consumers may be able to address the situation with a do-it-yourself debt management program. They should make a list of how much money is owed to each creditor and this list should be prioritized by importance (not the amount). If failure to pay a certain debt would result in serious action by the creditor, this item is referred to as a priority debt and it should be placed at the top of the list.

The following are usually classified as priority debts:

  • Rent or mortgage repayments
  • Secured loans
  • Utility bills
  • Council Tax
  • Other taxes Court fines

If people fail to repay these debts, they could have heating, cooling, and electricity service disconnected, lose their home or other assets, or be placed in prison. Payments should be made toward priority debts before all others.

These other debts are considered non-priority debts and include:

  • Overdrafts
  • Bank loans
  • Store card balances
  • Credit card balances
  • Catalogue repayments
  • Home-collected credit

Some people borrow money from friends or family members and the amount owed would also be considered non-priority debt. Just because debts are classified as non-priority does not mean they should be ignored. They are just placed lower on the list for repayment.

After expenses are listed and prioritized by importance, a personal budget should be established or revised. A weekly or monthly budget should be sufficient for identifying income and expenses. While creating or updating their budget, consumers should identify areas where they can save money and then take steps to do so. It is important to be realistic when dealing with a budget because this tool helps identify how much can be repaid to creditors.

Putting The Debt Management Program In Place

Once consumers know how much they can afford to repay to creditors, they should approach these providers directly. By telephoning each creditor, explaining the debt situation and the plan for handling it, and following up in writing, many consumers are able to negotiate affordable repayment terms. Though creditors are not obligated to accept the offer, many do because they would rather receive a partial or extended repayment than no money at all.

Some people have no trouble creating a debt management program for themselves, while others need help from someone more skilled in the process. Professionals are available to provide free help with every step of the way. Dealing with creditors can be a time-consuming and tedious process so some people would rather leave this job to the professionals.

Alternative Debt Management Programs Available

An informal agreement with creditors is not always the best way to handle debts, especially if outstanding balances are large and varied. More structured debt management programs are available for UK consumers. Information available online provides a basic overview but consumers should consult with a professional before entering into one of these.

Structured Debt Management Programs

Authorized debt specialists help consumers establish an Individual Voluntary Arrangement, or IVA. This is a formal agreement between a debtor and a creditor to repay all or a portion of the debts. A similar program, called a Trust Deed, is available to residents of Scotland.

Administration Orders are available through a local county court for consumers who owe £5,000 or less and can afford to repay it. Debt Relief Orders are designed for individuals with little income to spare who do not own a home and owe less than £15,000. Bankruptcy is an option for people who have no other way of getting out of debt.

Debt management companies offer debt management plans for unsecured debt repayment. The company negotiates an affordable repayment with creditors and manages the resulting fixed monthly payment to each creditor on behalf of the borrower. Some companies charge a fee for their services so consumers should inquire about this up front because the charge reduces the amount of money available for debt repayment.

A debt consolidation loan is another organized way to repay debts. The debtor takes out a loan large enough to cover all outstanding debts. The money is used to repay each debt in full and the consumer makes one monthly payment to repay the consolidation loan according to established terms. To be cost-effective, this loan should have a lower rate of interest than that of each outstanding debt. The term should also be long enough to make repayment affordable.

Getting Advice Regarding Debt Management Programs

The Consumer Credit Counseling Service and National Debtline are two of several organizations that provide free information and advice regarding debt management programs. Consumers can also find debt management companies that offer free advice and assistance with establishing a program to manage debt. These companies are staffed by professionals who provide confidential guidance tailored to the situation.

When looking for help, consumers should locate an organization that offers comprehensive information up front. People in debt may not be aware of the right questions to ask. Details regarding each program should be provided so they can read through it and base their questions on that information. This way, no debt solution goes unexplored and those in debt feel confident that they made the most well-informed decision.

Consumers should never be obligated to establish any of the debt management programs recommended by a debt solution provider. They should be permitted to use the advice to establish a program themselves or select from any of the plans mentioned.

The consumer has the ultimate say in which approach is taken for debt management. An expert merely provides information and makes recommendations regarding the best path to take.