If you find you're struggling to repay your unsecured debts every month, you'll need to find an approach that can help you manage your debts better - and repay them at a realistic rate.
If this is the case, one potential option is a debt management plan. If you can no longer make your repayments as originally agreed, a debt management plan could allow you to make a reduced payment every month to your unsecured lenders, so you can get back on top of your debts at a rate you can afford.
A debt management plan is an informal agreement between you and your unsecured lenders that is designed to simplify your unsecured debt repayments every month - and get you out of a debt as quickly as you can realistically afford.
You could make your own debt management plan and deal with your lenders directly yourself. However, agreeing one with a professional debt management company could mean all phone calls and letters between you and your unsecured lenders are handled for you - which could make your situation less stressful.
It's important to remember, however, that agreeing to lower monthly payments means you'd be repaying your debts over a longer period - which may increase the overall cost if your lenders don't agree to freeze interest on your debts.
A debt management plan will also show up on your credit record, which can affect your ability to get credit for six years afterwards.
What other ways could I manage my debts?
A debt management plan isn't the only possible approach to repaying your debts.
You may find that tackling your debts with a debt consolidation loan or an Individual Voluntary Arrangement (IVA) is better suited to you personal situation.
An unsecured debt consolidation loan could help you manage your debt more easily - you'd take out a new loan to repay your existing debts. This means you could make just one payment to one lender every month, which may make it easier to keep track of what you owe. Be aware that you must (as with all loans) be able to repay your loan in full - and that it won't be likely to help you if you're seriously struggling with your finances.
Alternatively, if you have significant unsecured debts and you can't afford your payments but can commit to making regular smaller payments, an Individual Voluntary Arrangement (IVA) could see the remainder of your unsecured debts written off on its successful completion, once you've repaid everything you agreed to when you signed the agreement. For more IVA information click here.
However, if you're a homeowner, entering into an IVA means it's very likely you'll have to release some of the equity in your home. And an IVA will affect your credit rating for six years from the day it starts.
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