A Debt Management Plan is an informal agreement between you and your creditors to repay your debts at a level you can afford, often with the interest and charges frozen.
People often set up a Debt Management Plan when they are struggling to keep up with their contracted payments and a high percentage of their repayments is going on interest charges.
The main three ways of entering into a Debt Management Plan are: using a paid company, using a free advice service or doing it yourself.
The general process is to create a list of you income and expenditure detailing all of your income and outgoings each month and send this information to your creditors.
The income and expenditure would show that you are unable to continue with repayments at the current level and would suggest reduced payment terms to allow you to repay the debt at a more manageable level.
You can also ask the creditors to freeze the interest and charges on the debts to help you get the situation under control, however they are not obligated to do this and no paid Debt Management Company can guarantee it.
Even if the creditors do not accept your reduced payment terms they are still legally obligated to take any payment from you regardless if the amount is lower than they are asking for.
Going on to a Debt Management Plan will adversely affect your credit rating as by lowering your monthly repayment amount you are in effect breaking your credit agreement. This needs to be considered when deciding whether a Debt Management Plan is the right option for you.
If you are in a situation when you are going to start missing payments anyway though this will also affect your credit rating so it is probably better to be on a plan than not and at least have the situation under control.
If you are considering a Debt Management Plan see our post on choosing a paid debt management company.