Debt Management Plans

A debt management plan is an arrangement with your creditors, but it is an arrangement to pay them the whole debt back (unlike an IVA, where they may only receive a proportion and write off the remaining debt).

A debt management plan company will write to your creditors and ask them to agree to a debt management plan.  If they all agree to this, then you will pay the debt management company a monthly amount and the company will take a fee from this and then pay your creditors off bit by bit.

Unlike an IVA, a debt management plan is not legally binding and creditors could pursue you for the debt.

It could take a long time to pay all your creditors off using a debt management plan.

Consolidation Loans

These loans are promoted as a way to make your finances easier to manage.  In effect you will take a loan out to pay all your debts off.  This will leave you with just one payment to the loan company rather than lots to your individual creditors.

These loans usually have higher interest rates than the original debts that you may consolidate and last for many years – sometimes as long as your mortgage.

Sometimes the loan company will ask you to provide security on a property, which means if you do not pay the loan, they could take action to repossess your home.

Payday Loans

These are short term loans that provide you with an amount of money that you want until your next payday.  They are relatively easy to apply for and the money is available almost immediately.  There will be a fixed fee until your next payday when you pay it back.

For some people, this may work as a short term fix, but many people cannot pay it back when they get paid, and the interest and additional fees incurred as a result of this are extortionate.

Debt Relief Order

A Debt Relief Order is an alternative to bankruptcy but is for people who owe less debt and have less assets.  It lasts a year (like a bankruptcy) and is on your credit rating for 6 years as is a bankruptcy.  So with a debt relief order it is likely that you are debt free after one year.

You can apply for a debt relief order if:

  • you have debts under £50,000
  • savings or other things you own amount to less than £2,000
  • you do not own a vehicle that is worth more than £4,000
  • you have lived in the UK for more than 3 years
  • you are not currently bankrupt, subject to an interim order or in an Individual Voluntary Arrangement
  • you have not had a Debt Relief Order in the past 6 years

There are restrictions as a result of having a debt relief order, these are:-

  • You can not get credit of over £500 without disclosing to them that you are subject to a debt relief order
  • You can not carry on a business in a different name to that you had when you obtained a debt relief order
  • You can not manage, run a business or be a director of a company without leave of Court

For more advice on debt relief orders visit the following website using the following link ‘Citizens Advice

If you’d like more advice don’t know what way to turn, please contact us for free, confidential advice with no obligation on 01302 965485 or fill in one of our forms and we’ll get back to you.