Debt Management Valley

Debt management: how it works

Press Release   •   Feb 22, 2011 07:43 GMT

Besides budgeting advice and help, the key tool in the credit counseling toolbox is a debt management program. Here is how it works.

The debt management company will contact all of your credit grantors and gain concessions, generally in the form of lower rates of interest for the life of your debt. Credit grantors will normally also agree to over limit and waive late fees for the duration of the debt management program. This can economize you thousands of pounds over time. Loan grantors will not lower your principal in a debt management program, so you will finish paying what you owe over the length of the plan.

The debt management company will verify your earnings and all of your expenditures, down to the standard of how much you spend on air-conditioning every summer and on birthday gifts all year. It will advice you to reduce your non-vital spending. It will then pop up with a monthly amount that you can afford to pay on your debts, and that will be the sum it will ask you to pay, in one sum every month to the company. The company will distribute it out to your credit grantors every month until they are paid off.

The normal monthly installment of a debt management program is amidst 2% and 3% of the outstanding debt. For someone with 26,000 pounds in credit card bills- a typical amount- that implies you would have to come up with amidst 520 pounds and 780 pounds a month to remain on the program. But currently a group of main creditors agreed to accept less every month from consumers in particular distress. They said they would accept 1.75 % a month for hardship clients- those who had lost jobs, or who had major health problems or other reasons why they could not qualify for even a conventional debt management program.

Of course, at that rate of payoff, even with a 6% interest rate cap on the charges, it would take more than five years to pay off the debt. The typical length of a debt management plan is 30 months.

If, after adding up all of your debts and analyzing your income and expenses, the credit counselling agency determines that it would take you six years or more to pay off your debts, or if you are not able to even make the minimum payments on a debt management program, then the DMP may not make sense of help. That is when it is time to talk to a bankruptcy lawyer about your other options.

William Booker is writer of Debt Management Valley.For more information about Debt management program, Debt Help visit