Posts Tagged ‘plan’
Can a debt management plan freeze interest?
One of the worst things about being in debt is often the interest. If you can’t afford to repay what you owe, the interest can start to mount up very quickly – especially if you owe money on high-interest forms of credit such as credit cards and overdrafts.
However, there is help available. One option may be a debt management plan: an informal arrangement between you and your lenders in which your unsecured debt repayments are made affordable again.
In many cases, the interest and other charges on debts covered by the arrangement will be frozen (depending on what your lenders will agree) – which stops your debts from getting any bigger while you’re trying to repay them.
How debt management works
A debt management plan helps you to repay your unsecured debts at a pace you can manage. Your payments will be reduced to an affordable level, based on what you can afford after your other essential living costs have been covered. You’ll usually carry on repaying your debts in this way until your circumstances improve – or if that doesn’t happen, until your debts have been fully repaid.
As we mentioned earlier, interest and charges will often be frozen during a debt management plan (although like the debt management plan itself, this is completely at your lenders’ discretion). If your lenders agree to this, your debts won’t be able to grow, so you’ll be able to repay them more quickly than if interest was still being charged.
However, note that if interest and charges aren’t frozen, the longer repayment period will mean you pay more in the long run. Also remember that because you’ll no longer be making the debt repayments you originally agreed, your credit rating can be affected.
Is it right for me?
A debt management plan could help to make your unmanageable debts manageable again. But remember that like any debt solution, it’s not right for everyone.
If you can’t commit to regular payments, or if you don’t think you can afford to repay everything you owe within a reasonable timeframe, then you may need to consider an alternative debt solution.
Take our debt test to find out whether you could qualify for a debt management plan.
