Debt management plan
Don't let your debts get on top of you - take your finances into your own hands and make a plan to get yourself back in control. A debt management plan offers you the chance to start managing your debt one step at a time, meaning you'll find it easier to work your way out of debt. While your debts may seem overwhelming, a debt management plan will help you tackle them in manageable chunks - so use the handy guide below to create your own debt management plan.
Debt Management Plans Explained
Everyone's debts are different, but a simple guide like this can help you sort out your own unique debts.1. Make a list of your debts
The first step to managing your debt is to work out exactly how much money you owe, and who you owe it to. Make a list of all of your debts and include details of all of your creditors (the people you owe money to). Get together as much information about each of your debts as you can. For example, a copy of your original loan agreement or letters detailing exactly how much you owe and where extra costs have been incurred. Make sure you know exactly how much you owe on each debt, and work out which of the debts need to be dealt with first - for example, if you've received letters that seem urgent or threatening, these should be considered a priority. If you need help determining which debts are most important, organisations like the Citizens Advice Bureau can help. Then sort your debts into priority and non priority debts, i.e. the ones you must pay as soon as possible and the ones that can wait until you are in a better position to deal with them.2. Work out your outgoings
Even if you are deeply in debt, you need to give yourself a budget on which to survive - otherwise you will find yourself creating new debts. Therefore, the next step in your debt management plan is working out your monthly outgoings. First of all, make a list of all of your income sources. This includes benefits, child maintenance and contributions from family or lodgers, as well as any wages. Once you know what resources are available to you, you need to establish your basic outgoings. Your outgoings will include rent, food, water and fuel and other essentials and you need to add these up and subtract them from your income to find out how much money you have left over for paying your debts. If you need help drawing up a budget, there are advice agencies that can help. When you are offering to start paying off your debts, you'll need to know your budget and ALL of your debts, so that you can work out exactly how much you can afford to pay each creditor.3. Sort out debts in order of priority
Don't ignore priority debts, no matter how scary they might seem. Instead get in touch with the creditors as early as possible and explain your situation and how much money you have available to pay them per month. Make sure that you keep a copy of any letters you send to them as well as the ones they send you. You should also follow any telephone call up with a letter so that you have any agreements made in writing. Many creditors are happy to negotiate with you if you can assure them you have every intention of paying off your debt. If you have any court letters from your priority creditors, make sure you get in touch with them even if you don't have money to pay them straight way - for instance, send them a holding letter so they know you are addressing your finances. Once you have addressed your priority creditors, you can think about lower priority debts, but do not pay these until you have cleared your other debts unless they become higher priority.
Debt Management Plan Companies
There are also companies that can help you sort out a debt management plan. These debt management companies typically consolidate your debts, meaning that you pay them one monthly payment and they deal with your creditors. Sometimes debt management companies are able to negotiate a discount. However, others charge you for their service - so it's wise to research any company you're considering. Additionally, debt management companies only deal with non-priority debts, so you need to sort out your most pressing debts first. By starting and sticking to a debt management plan, it will be easier for you to get started on creating a debt free future for yourself.