A debt solution should only be sought if you are genuinely struggling to repay debts.’

A common question we are asked – ‘What is the best debt solution for me?’

The only way to really answer this is by conducting a thorough financial statement of affairs. We need to understand each individual's situation, before suggesting they follow a particular route, as one solution does not suit all individuals.
As a result, over the next few weeks, I will discuss each and every solution in the hope that you can make a more informed decision about which solution is better suited towards your needs.

Description

A Debt Management Plan (DMP) is an arrangement between you and your creditors, negotiated by a third party. It enables you to repay your unsecured debts with a regular and affordable monthly repayment.
DMP's are now a widely used due to their informal and flexible nature. You can maintain regular repayments and keep in contact with your creditors through a third party. If your financial circumstances change, then your monthly repayment can be amended accordingly.
Individuals can contact a debt management company (DMC) who will charge for their service and help setup and maintain their accounts with creditors on a monthly basis. A DMC will become the third party and come in between individuals and their creditor in all matters relating to their debt.

Alternatively you can independently setup a repayment plan by contacting each of your creditors and explaining your situation. You may then be able to negotiate a reduced monthly repayment.

You are also entitled to telephone or visit your local Citizens Advice Bureau offices (CAB) to consult a debt advisor who provides guidance and assistance. Debt charities offer a similar service to CABs and DMCs.

Advantages

One reduced monthly repayment.
Third party will manage debts.
Flexible plan, payment can change according to circumstances.
May reduce or freeze interest and charges.

Disadvantages

Increase term of repayment.
Can be difficult to obtain further credit.
Creditors may not agree.
Cannot stop all contact from creditors.

When seeking paid advice, always read the company terms and conditions before entering into an arrangement and check if they are licensed by the Office of Fair Trading.