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How debt management works

The debt management process starts when you have been accepted as a new customer by a debt management company. That company will collect the following information about your circumstances:

• what you owe (e.g. lenders, the types of credit, your account numbers and balances)
• your monthly income (e.g. salary, benefits and any other income)
• your monthly expenditure (e.g. rent, bills, car/transport and household).

Using this information, the debt management company will agree with you an affordable amount that you would be able to pay on a monthly basis.

At this point, the debt management company contacts your creditors to explain your situation and to try reaching a settlement on your behalf of the debtor. In particular, a good Debt Management Plan will be based on some or all of the following:

• an agreed reduction in your overall debt
• a freeze on interest charges
• rescheduled payments so that you repay debts over a longer period of time
• an agreement to stop progressing any legal activities

There is no guarantee that all of these goals can be achieved, but creditors will often agree to at least some of them. If an agreement can be reached with all of your creditors then you will begin your Debt Management Plan and start making payments to the debt management company instead of to your creditors.

What to look out for

Remember that Debt Management is not a legally binding process and individual lenders can change their mind in due course. They can also continue to chase you for payments directly, or even continue to press for legal action or even bankruptcy.

Your payments will be lower in the short term, but interest can continue to build up unless Debt Management negotiations have been successful. That will mean that paying off the whole amount may take many years. A badly executed Debt Management Plan can even get you further into debt if interest builds up faster than your repayments.

As with all debt solutions, it's important not to carry on building up other types of debt such as credit card debt and overdrafts. Some organisations suggest cutting up credit cards until the consolidation loan is paid off.

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or complete our simple online application form for free, impartial debt management advice.

Further Reading:
Debt Help | Debt Advice | Debt Solutions | How Debt Management Plans Work | What is Debt Management | Compare Debt Solutions |

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