How long will a debt management plan last?

29 May 2009

If your problems with debt have come to the point where you simply can`t keep up with your repayments, then you might want to consider a debt management plan.

A debt management plan is an informal arrangement with your lenders for reduced payments towards your debts each month, based on how much you can afford to pay. In some cases, it can also involve a freeze or reduction in interest and other charges, which can prevent your debt from getting any bigger.

It is possible to arrange a debt management plan on your own, but this can take a lot of time and effort. Because of this, you may prefer to go to a debt management organisation, which can negotiate with your creditors on your behalf. Since they should have dealt with many cases like yours in the past, a debt management organisation should understand exactly how the process works.

How long will it take?

There is no set period of time for a debt management plan. How long it takes will depend on - among other things - how much debt you have, and how much you can afford to repay each month.

For example, let`s imagine you have £5,000 of debt, but can only afford to repay around £200 a month. In total, that`s 25 payments, meaning you could clear your debts in just over 2 years.

Similarly, if you owed £20,000, your £200 monthly payments would take 100 months (8 years and 4 months) to pay off the full balance.

However, these aren`t the only factors. For example, there`s also the question of whether you arrange your plan yourself or go to a debt management organisation, which may charge a fee for their services.

Then there`s the question of interest and charges - unless you (or the debt management organisation) can arrange for interest and other charges to be frozen or reduced, this can add to the debt as you`re paying it off.

What else is there to consider?

Bear in mind that a debt management plan is a change from the repayment terms you originally agreed with your lenders. Your lenders may reject a new repayment plan, in which case you may have to consider a different debt solution, or face the possibility of court action from your lenders.

If they do accept the new terms, they may still issue a default notice, as you`ve not stuck to the original repayment terms. This will show up on your credit record for six years.

Debt management plans can last as long as 10 or 15 years in some cases, but this is relatively rare - if you can`t be sure that you`ll be able to repay your debts within a reasonable period of time, it`s worth considering a different debt solution, such as an IVA (Individual Voluntary Arrangement) or bankruptcy.

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