How to Conquer Your Debt

There are times when we all need to make our pounds stretch a little bit further. Sometimes we need to take on that extra line of credit. But trouble can arise when it comes to paying our creditors back.

It's the repayment that causes anxiety when it seems there's no way out. Yet there are various options available to help you consolidate your debt and get your repayment back on track.

What is the meaning of debt management?

Debt management means handling your debts so you can pay them off over time.

This might include talking to your creditors to set up a plan, making regular payments, and organising your finances. The goal is to help you take control of your debt and improve your financial situation.

What’s a debt management plan?

A debt management plan (DMP) is an arrangement between you and your creditors that sets out the agreed repayment plan for your debts. A plan is appropriate when you can make small monthly payments or you need a repayment break to help you get back on track and pay your creditors after a period of a few months.

Is it worth doing a debt management plan?

A debt management plan can be very helpful if you’re struggling with unsecured debt.

It makes managing your payments easier and can help you get back on track with your finances. But before starting a DMP, make sure you can stick to the plan and make the agreed payments.

What is the best way to manage debt?

The best way to manage debt is to communicate openly with your creditors, set up a debt management plan, and possibly use a reputable debt management company.

Good debt management includes keeping track of your finances, making a budget, and paying your bills on time. If a DMP isn’t right for you, explore other ways to handle your debt.

If you need more options or help with managing your debt, look for resources like the Money Advice Service to guide you through the process.

Speak to your creditors

It sounds obvious, but when you have those demand letters hitting your doorstep, it's easier to hide your head in the sand and hope they'll go away. But there are better options than this in the long run. If you don’t engage with your creditors and ignore them, they'll escalate their collections activities, and you could end up in court - or worse - losing your house.

If you keep your creditors updated on your position simply by calling them, they will probably be reasonable. A creditor is more concerned with brokering repayment than issuing court claims. If you're honest about what you can afford to pay and when, they'll work with you to ensure a positive outcome for all involved.

Using a debt management company

You can establish this plan between your creditors yourself or by using a debt management company, which will liaise with your creditors on your behalf. If you choose this route, they'll charge you fees for establishing and conducting your plan, but they'll take over the management of your debt, taking the burden from you.

The Money Advice Service is a good place to start when looking for a debt management company - it offers details of both national and regional firms. If the company you use is registered with the Financial Conduct Agency (FCA), you can ask them for advice and escalate your complaint.

If a debt management plan isn’t for you and you wish to know about other debt consolidation options, why not read our other articles on managing debt on The Knowledge Hub?

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Your common questions answered

Does a DMP affect your credit score?

Yes, a debt management plan (DMP) can impact your credit score.

When you enter into a DMP, it gets noted on your credit report. This can lower your credit score and might make it harder to get new credit while the DMP is in place.

Is a DMP better than an IVA?

A debt management plan (DMP) and an Individual Voluntary Arrangement (IVA) are different ways to handle debt.

A DMP is usually for smaller debts, while an IVA might be better for larger debts. Which one is better depends on how much debt you have and your financial situation.

Will a DMP affect my job?

Generally, a debt management plan (DMP) shouldn’t affect your job.

However, if you have a job that needs you to handle money carefully or if your employer checks your financial background, your DMP debt might be noticed. It’s important to understand how it could affect your job based on your role and responsibilities.

How long will the DMP stay on my credit record for?

Once your Debt Management Plan (DMP) is complete, you can either close the accounts you’ve paid off or resume making full payments. Your credit score should gradually improve if you consistently meet all your repayment obligations. Although records of your debts will remain on your credit report for six years, lenders may place less importance on them as they become older.

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