Can debt management help with credit card debts?

For people who are struggling with their debts, finding a way to bring those debts back under control is a number-one priority.

There are different debt solutions that can help people tackle their debts, but not all debts are the same. ‘Priority’ debts – like mortgages and secured loans – are quite simply more important than other debts, and someone who’s having problems with payments to a debt like that will probably need to work with their lender as they try to regain control of their finances.

Other debts, though, are known as ‘non-priority’ debts. This is a category which includes unsecured debts such as overdrafts, store card debts, personal loans – and credit card debts.

The term ‘non-priority’ doesn’t mean borrowers aren’t obliged to repay these debts – it’s just an acknowledgement that they’re less important than a debt like a mortgage. Credit card providers and other unsecured lenders generally appreciate that borrowers have to keep a roof over their head, and they may be willing to accept lower payments if it’s the only realistic way for the individual to repay their unsecured debt without drawing on funds they really need for their priority debts.

Debt management and credit card debts

Debt management is a debt solution that can help people repay credit card debts – and other non-priority debts – at a rate they can afford. A debt management plan involves talking to those unsecured lenders and asking them if they’ll accept lower payments. Borrowers can do this themselves or ask a debt management organisation to do it for them.

Lenders don’t have to agree to this, but as long as they can see that the borrower genuinely can’t keep up with their original payments, and that accepting lower payments is the best way of helping them repay the money, there’s a good chance they’ll accept the terms of the debt management plan.

This can have a negative effect on the individual’s credit report, but if there’s no way they can keep up with their payments, this might be something they can simply no longer avoid.

Lenders often agree to freeze interest and waive other charges while the individual is on a debt management plan, but if they don’t, be aware that repaying any debt more slowly will mean it has longer to accrue interest.

Debt management – the monthly payments

On a debt management plan, the borrower – or the debt management company they’ve asked for help – will have to figure out a way of making payments that their lenders can (hopefully) accept. To do that, they’ll need to calculate ‘pro rata’ payments – offering each lender a portion of the available money that’s in relation to how much they owe that lender. So if they owed lender A £1,000 and lender B £5,000, they’d offer lender B five times as much as they’d offer lender A.

When we say ‘available money’, we mean money that’s available after the borrower has taken into account all their essential expenses, such as their food bills, mortgage or rent payment, utility bills and other necessities – the things they really can’t live without.

So, although a debt management plan only deals specifically with someone’s unsecured debts, it should really help them to stay on top of their priority expenses as well.