A debt management plan is relatively easy to put in place. You work out how much you can afford a month, and then split it equally amongst your creditors on a pro rata basis. If you own a home, a debt management plan will not normally force you to release any equity from your house.

An important thing to remember is that a debt management plan is not legally binding, which could prove to be both an advantage and a disadvantage. Because this agreement is informal, you do not have to include all your creditors.

If this sounds good to you, keep in mind that there are some pitfalls with this type of agreement. Firstly, your monthly payments are reduced, making paying a lot easier. However, this should not fool you into thinking that you do not have to pay everything back. Because of this reduced rate, it will take longer to pay back – about 8-10 years. This is a long time to be living with a tight budget, with just enough to make ends meet.

Secondly, a debt management plan is not a legal agreement; therefore creditors have the right to go back on their original agreement. This could mean creditors demanding money every month, which could be more than you can reasonably afford.

Thirdly, creditors who agree to a debt management plan are under no legal obligation to freeze their interest and charges. They could also threaten to add interest if you do not agree to pay them more each month.

If you feel that a debt consolidation loan is the way to go, do not let the negative side affect your decision too much. Sure, it is something to take into consideration, but debt management plans can be an excellent tool for resolving debt. Speak to a financial advisor about which options are best for you

What does a debt management programme do?

A good debt management programme can help you reduce your interest rates, or cut your monthly repayments, saving you much needed cash every month. A repayment plan is worked out with your creditor – one which suits your budget.

When you first enter into a debt management plan your debt counsellors will sit down and assess your personal debt levels and how much available income you have. They may also negotiate a repayment plan with your creditors. They may, in some cases, even get your late fees wavered.

How do these programmes work?

Firstly, you will be asked to deposit your income into an account. The company will then distribute your income between all creditors, making sure each payment is advantageous for you. Remember that you are allocated money of your own, which you use to maintain your normal standard of living.

Do I need to go through a debt managment company?
Can I manage my debt problems on my own?

Of course you can, if they are under control and you know what you are doing. Most creditors will be happy to negotiate a new payment plan for you – they want you to make your payments after all. You can also create your own budget and be strict about what you are spending you money on. This way you can catch up on all your overdue bills.

Many clients have tried this system by themselves, only to realise that they do not have the discipline to maintain it. This is why these programmes have been put in place.

Which debt management programme is the best?

Some debt management companies may charge exorbitant fees. Always check what your fees will be before entering into the agreement. Also, opt for a professional and licensed debt management company with proper industry accreditations.

Also, be sure to ask how your payments will be allocated among your creditors and how confidential your information is. Once you are happy with everything, be sure to get a quote in writing so you have proof of agreement.

The charity, National Skills Academy for Financial Services (NSAFS),plans to visit colleges and universities this September and October and ask students to take a Money Pledge, where students commit to taking on board the debt management advice by managing their finances responsibly.

The Money Pledge will identify six financial areas which are of most concern to students: bank accounts, savings, mobile phones, loans and mortgages, university fees or debit, credit and store cards.

This moves comes as an increasing number of graduates fail to find work after university and are left with personal debt problems, therefore meaning that some have to take professional debt management advice.

Sylvia Perrins, chief executive of NSAFS, commented: “The current economic environment has highlighted the importance of ensuring our nation is more ‘money-minded’. Colleges have an important role in shaping the future. Providing their students with an opportunity to become more financially astute is fundamental to our individual and national prospects.”

The average 50-60 year old takes longer to pay off their debts and owes more, according to research. The average unsecured debt in this age range is £41,000, compared to the average debt level of £32,700 in other age groups. This is a 25% different in the amount of unsecured debt which is owed.

Unsecured debt consists of personal unsecured loans, credit cards, store cards and overdrafts which are usually lent at a much higher interest rate than secured debt.

Managing director for the debt management company which compiled the report said: “Although many people in their fifties are used to maintaining high levels of personal debt they are often just ‘treading water’ with repayments and covering little more than interest charges.”

There are number of key debt management benefits which you may want to consider when deciding upon a debt solution. These include:

1. One reduced monthly payment to make: The two main key debt management benefits is that a) you lower the amount you need to repay to your debt, and b) your unsecured debts are all consolidated into this lower monthly payment. This means that you don’t have to worry about making payments to multiple creditors at different times in the month; all your unsecured creditors can be paid with your debt management plan.

2. We will deal with your creditors: One of the most stressful things about falling behind with your debt repayments is the constant flow of calls and letters from your creditors demanding payments which, realistically, you cannot afford. A debt management plan removes this worry as we will deal with your creditors on your behalf.

3: Better budget management: A debt management plan allows to to handle your budget much more effectively. You will know exactly how much you will have to pay towards your debt management plan and the amount which is due. This allows you to effectively budget your spend and, as the debt management plan has been tailored to your personal financial circumstances, it will be affordable.