Debt Management Plans - Help Or Hindrance?

When considering if a Debt Management Plan is the right way forward, it helps to understand what one is. A Debt Management Plan is a way of allowing the person in debt to regain control of their financial situation, clear their debts over a specified period and not take on more debt in doing so. Normal practice is for the plan to be administered by a specialist agency, which will also manage the negotiations with the creditors. The debt management agencies do make a charge for their services which is built in to the repayment plan.

Debt advice charities are reporting that too often families are advised to take on more debt as a way of easing their worsening financial plight. The charities have also stated that families and the retired are calling seeking help in greater numbers than ever before as they struggle to keep their finances in balance as they face the constant increase in the prices of the basics of life.

Debt advice charities are now warning against the "borrow to ease financial worries" mentality, which usually involves the consolidation of previous loans into the new one. Supermarket Bank Sainsbury's recently stated that approximately a quarter of all personal loan advances are for debt consolidation. Despite the tightening of loan criteria by all High Street Banks demand for loans of this nature are still high with expectations of up to ?3Bn being lent in a quarter of a million loans in the first three months of 2009. Sainsbury's anticipate that January could account for up to one fifth of this years consolidation loans.

Taking out additional credit to resolve a debt burden is often not a solution and often causes the individual even more financial concern.

Debt management plans (DMPs) and individual voluntary arrangements (IVAs) are among the potential solutions offered by both debt advice charities and professional debt help companies alike as they try to help people with their concerns.

Debt management plans (DMPs) are normally negotiated on the client's behalf by the debt advice organisation with the creditors. When a client's circumstances improve they allow for increased payments. Debt management plans ensure that repayments are more manageable by spreading the total debt over a longer period and reducing repayment. Debt management plans are an informal debt help solution, with no formal contracts involved. If individuals feel it is no longer appropriate for them they are free to opt out if they wish.

A more formal process IVAs (Individual voluntary arrangements) require a legally binding contract. Additionally they have to be administered by a qualified Insolvency Practitioner and follow a full debt advice consultation designed to ensure that an IVA is the right debt help solution. They usually run for a fixed five year term and the level of payment is also fixed.