FAQ Debt Management Plan
Q1. Who should use a Debt Management Plan?
A This is likely to suit people who owe less than £15000 because it is usual to repay such amounts in full in a reasonable period of time in a Debt Management Plan. However, whatever level of debt, if your financial position is due to improve in the near future as a result of an income increase or a re-mortgage and you are looking for a temporary solution until then, the Debt Management Plan is the best although your credit rating may be damaged in the process.
Debt Management Plans tend not to work if you have a large number of creditors as it is almost impossible to negotiate effectively with many different creditors at once. Once an agreement has been reached, the negotiations are not over and you may find yourself having to renegotiate with the same creditor a few months down the line. It is a very time-consuming matter and unless you are highly organised it is easy to lose track of the different arrangements that have been made.
Using a Debt Management company to carry out negotiations on your behalf can help take the pressure off quickly.
Q2. How can I set up my own Debt Management Plan?
A Many people plan to do this but find they do not have the time or energy to complete all the negotiation.
You should compile a list of exactly how much money you owe to each creditor, inclusive of interest and all charges. Then calculate the percentage of the total debt that is owed to each individual creditor. Draw up a budget sheet for your personal monthly income and expenses, and come up with a sum of money that you feel you could realistically offer to your creditors each month – this is called your ‘disposable income'. You should divide your disposable income between the creditors allocating each creditor a portion equivalent to their percentage of the total debt. This calculation will form the basis of your negotiations, and you should make this clear in the letter that you write to the creditors and your further discussions with them.
As an additional rule of thumb, you should be looking to pay a minimum of at least 1% of your total debt to each creditor every month in order to stand any chance of getting a freeze put on interest. If this amount is unaffordable, you might need to consider another option.
Q3. Choosing a Debt Management Company?
A There are pros and cons. If you want to deal with your debts now but do not feel you have the time or energy then hand the controls over to someone else specially trained to deal with it. Be careful choosing the company to act for you. Questions to ask would be:-
- How long will it take me to get debt free?
- Is the company FSA authorised?
- Will the company pay my creditors promptly?
- Is the company acting for me or my creditors?
- What exactly will I be paying in commission each month?
- Will you be able to get my creditors to freeze interest and charges?
- Do you offer real ongoing support?
- Will I receive monthly statements and full notification of how my affairs are being managed?
Creditors are under no legal obligation to negotiate with Debt Management companies, however most will if it means resolving the situation. Although you can do this work yourself these companies have the time and expertise to ensure that you receive help promptly and effectively.
Sovereign Financial Solutions only deal with carefully selected companies with a track record of putting their clients interests first.
