The Pros and cons of using a debt management company

If you owe small amounts of unsecured debt to three or more companies and can afford to offer your creditors at least £100 per month, you may be able to enter a debt management plan. This involves making a payment to a debt management company; after deducting their 15% fee, the remainder is distributed to your creditors based on how much they are owed.

The burden of debt is too much for most people, especially if non-payment means that you're receiving constant calls demanding repayment. You can't pay them because you don't have enough money. Rather than paying the amount that's specified in the credit agreement, you can set up a debt relief program to pay a reduced amount that's based on affordability.

A debt management plan is a non-legally binding agreement and can be cancelled by either party at any time. However, most creditors are happy with the arrangement because it's better than bankruptcy. If a creditor contacts you, you're able to refer them to your debt management company. You no longer have to deal with things alone.

Aside from the management charges, the main problem with this debt free solution is that you're increasing the longevity of your debt. You have greater affordability, but you're making a reduced payment to your creditors. If your circumstances change for the better, you'll be expected to pay extra. Conversely, if you run into further financial problems, you may be able to reduce the amount that you have to pay each month.

If you haven't missed any repayments and have a good credit history, you may wish to consider a debt consolidation loan. Homeowners with bad credit are also able to borrow money against the equity in their home.

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