Dealing with credit cards, loans and overdrafts
In the second quarter of this year, 30,513 people were declared insolvent in England and Wales, according to the Insolvency Service. Insolvency involves a formal agreement between someone in debt and their lenders, although the agreement basically only applies to unsecured debts.
If you become insolvent, it could lead to the sale of your home or releasing equity in your home.
Some of the people who ended up insolvent might have avoided insolvency if they had found a way to deal with their unsecured debt sooner. A debt management plan is one potential way to repay those debts when you can no longer afford your monthly payments.
It is an ‘informal’ agreement (unlike insolvency) – if your unsecured lenders agree to it, it offers the flexibility to spread your debt repayments over a longer period, to make them more affordable. Repaying a debt more slowly can cost you more in interest, but you should be able to afford your monthly payments.
On a debt management plan, you could repay things like:
Credit card debts
Unsecured bank loans
Overdrafts
Hire-purchase agreements
Store card debts
Catalogue accounts
Other debts, such as mortgages, secured loans or student loans, wouldn’t be included in a debt management plan.
However, a debt management plan could reduce your monthly payments towards unsecured debts such as your credit card(s), loan(s) and overdraft(s), helping to make your other expenses affordable.
If you’re struggling to keep up with your debt – if, for example, your debt payments leave you short on money for other living expenses, or take you over budget altogether, you can find out more about debt management plans at detbadvicenow.co.uk/debt-management.
Debt management plans are a flexible way to repay your unsecured debts in full when they become unaffordable. Making lower monthly repayments would be recorded on your credit file for six years, but as long as you stick to the payment plan, it can help you keep on top of your mortgage payments, so you shouldn’t need to sell your home.