1st April '08 - Take Control with Debt Management
It can happen to the best of us. A few niggling debts begin to pile up, others seem to snowball in and, before we know where we are, our debts seem to be spiralling out of control. Whether or not you do it by enlisting the help of a debt advice agency, a debt management plan is a way of reasserting your control over your own personal finances.
The first step in taking control of your debt is to recognise that you have it. This might seem a fairly obvious declaration, but it’s amazing just how much weight it can carry with creditors, especially if the scale of the debt appears reasonably manageable and has not been hanging around your neck for a long time. An open and honest acknowledgement of all that you owe, together with an insistence that you are determined to repay it, on the basis of a realistic plan, can carry a lot of weight. It gives a particularly strong signal that you want to take control once again and a carefully prepared debt management plan can head off other, more legally formalistic measures such as an Individual Voluntary Arrangement, or IVA.
In preparing a debt management plan, therefore, you set out all your outstanding debts, to avoid any question that you’re trying to avoid them. The next step is to set out a corresponding schedule of your income and all your essential expenditure. Essential expenditure is on such things as the rent or mortgage repayments (because you could risk being homeless if they’re not made); the utility bills; the car; council tax and any fines that are due to the courts. Included in such essential expenditure will also be that part of your income that goes towards maintaining yourself and your family.
Schedules as detailed as this can be quite complicated to draw up and many people find it helpful to seek the assistance of debt advice agencies in order to get it right. Getting it right is important, because the persuasiveness of your debt management plan will be a large part of whether or not it’s successful.
The plan itself will show what there is left once you’ve taken away all your essential expenditure from your income. And what there is left, of course, is what you’re hoping to convince creditors will be enough to repay all your outstanding debts. Naturally, this is going to be more convincing if you appear to have a reasonable surplus after deducting your essential expenditure from your income or if the total of your debts is fairly small.
In order to give your debt management plan a greater chance of success, you will probably also be asking your creditors for a reasonable period of time in which to repay what you owe, so you’ll also be asking them to put a freeze on the accumulation of any more interest charges to stop the debt growing still further over time.
Debt management offers you the change to regain control of your finances because:
- You openly own up to all your outstanding debt, with a declaration of your intention to repay it;
- Your intentions are based on a sound and realistic schedule of payments that reflects your current income and the essential expenditure it also has to meet;
- Debt help and debt advice on the preparation of a debt management plan likely to convince your creditors of your intentions are readily available from a number of sources;
The informal debt management plan provides a realistic alternative to the legally more formal Individual Voluntary Arrangement, which needs to be agreed by and lodged with the county court.
The author of this debt management article is John Smith.
This article does not represent ‘financial advice’ as each person's individual requirements will be unique to their own needs. If there is something in the article which you may wish to rely on, ensure you check those details with the person or company with whom you arrange financial services.
The views in this article represent those of the author and not those of Netbasic Limited.
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