A step-by-step guide to crafting a debt management plan

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A debt management plan may help you manage and pay off your debts without the stress of constant bombardment from creditors. It can also aid you in the process of getting back on financial track, but it can be awful if you don’t do them properly or if you take on debt management for the wrong reasons.

Step one: Take a look at your credit report and find exactly what you owe

By understanding what’s on your credit report, you can start to plan what you’re going to pay back and when. By taking a look at your outstanding debts you can start prioritising. You should also seek advice on how to manage your debt from experts. 

Step two: Do you qualify and should you get a debt management plan?

There are lots of debt solutions available but need to find out whether you are qualified for a debt management plan, and if it is the best option. It’s a good idea to talk to a debt professional, but make sure you are talking to someone who is not financially vested in new entering a plan, as they are more likely to be salespeople than looking for your best interests to be met.

Step three: Think about priority debts

Before you commit to any debt management plan, make sure you get as many of your priority debts up to date. Priority debts are those that can have the most severe financial, legal and anxiety-producing consequences. Think about your mortgage and rent, council tax and any bills that can get you taken to court, and have them sorted out as quickly as possible. T

Step four: Create a strategy

Start by making minimum payments on your debts so that they don’t accumulate any further. Then you can either choose an avalanche debt pay off method or a snowball debt payoff method. The important thing is that your priority debts are cleared first. In most cases, it is a good idea to pay off the debts with the highest interest first to reduce the amount that you are paying monthly fee amount of debt you have.

Step five: Consider a debt reduction spreadsheet

There are lots of debt reduction spreadsheets available online where you can add your income and expenses, and you can calculate repayments based on interest rates that you are paying. You can also organise your monthly expenses and your income so that you can work out the best way to pay off your debt fastest and with the least interest. If you can improve your situation gradually then you may be able to take out more debt but at a cheaper rate to reduce your monthly outgoings and pay things off faster.

Who can enter a debt management plan?

Approval for debt management plans is more about having some spares, rather than having lots of debt. If you have some disposable income, then you’ll be able to pay small amounts towards all of your house earning bills and debts and will, therefore, most likely qualify.

Which debts can be paid off through debt management plans?

Debt Management plans are used for non-priority debt such as personal loans, building society loans, overdrafts, credit card and store card debts, payday loans, catalogue and store credit card debt.

Make a good decision for your future

It can be really bad to enter a debt management plan if you don’t need it and you can solve the problems yourself. If you can get a loan at a cheaper rate than you are currently paying for your debts then you may be able to save hundreds of pounds a month and get yourself back on track. 

Don’t let things spiral out of control and wreck your credit, or get to the stage where bailiffs are knocking on the door when you rather could take the stress out of your life with a debt management plan. Before you do so, though, make sure you do take advice.

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