Can my debt management plan pay off bill arrears?

There are debt solutions to help with all kinds of debt. But which one is right for you will depend on a number of things – how much debt you’re in, how many (and what kind of) creditors you owe money to, whether or not you’re employed, etc.

If you find you can no longer afford your debt repayments, but think you’ll be able to pay off the debt in smaller amounts over time, a debt management plan might be the right debt solution for you.

How a debt management plan can help

A debt management plan is a new repayment plan for your debts. It’s an informal agreement with your lenders in which you’ll make reduced monthly payments towards your debts, either until your circumstances improve or until the debts have been cleared. This helps ensure that you can afford your other commitments while your debts are being cleared.

It’s also common for interest and other charges to be frozen (or reduced) on a debt management plan. This stops your debt from growing, and it means that more of each payment goes towards paying off the debt itself.

Just note that repaying your debts more slowly than you originally agreed to can damage your credit rating, as you’d be ‘defaulting on’ (not keeping up with) the original repayment agreement. It may also mean you’d be paying more in total, since the debt would have longer to grow (unless your lenders agree to freeze interest, of course).

Can it help with my arrears?

Quite simply, this depends on what type of arrears you’re dealing with. It won’t help directly with bill arrears (utility bills, for example, are ‘priority debts’ and won’t be included in a debt management plan), but it can help with some other arrears.

A debt management plan helps directly with your non-priority debts. Non-priority debts are basically debts which don’t directly threaten your basic standard of living if they’re left unpaid, such as unsecured loans, overdrafts and hire purchase agreements.

Debt management plans won’t help directly with priority debts, such as overdue bills, mortgage payments and secured loan payments – but since your new repayments will be calculated to fit around these, the debt management plan will still help indirectly, by making sure you can afford them.

Also, a debt management company may be able to speak directly with your energy suppliers, mortgage providers etc. to negotiate some kind of repayment plan on your priority debts.

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