Handling Debt Management Problems in Retirement

Post by Gemma Collier

If you’re enjoying a happy retirement with a good income and control over your debts, congratulations.  But chances are you know others who are struggling right? Or it could in fact be you who feels like you’re slowly drowning in debt and looking around for options.

Whatever the case, sooner or later, you’ll hear about the possibility of a debt management plan or DMP. This can be a good solution for people struggling to make monthly payments on credit cards and loans while still offering a reasonable degree of flexibility.

Debt management plans attack the core of the problem as someone will talk to creditors on your behalf and negotiate one affordable monthly amount to your creditors. Your payments are based on your income, but none of your debts are actually written off. However, interest payments are stopped so you avoid getting deeper and deeper into debt. DMP is open to both homeowners and tenants. It is flexible in that if your circumstances change you may be able to amend your payment to suit your ability to pay.

The good news is debt management plans are very private – you don’t go on an official register and your assets aren’t usually looked at.

So what are the downsides?

The first thing to be aware of is your credit rating can be negatively impacted by entering into such an agreement. Also, while a DMP might initially seem like the ideal solution, it may not be if you’re simply in too deep and the debt will be hanging over you for decades as you struggle to make monthly payments. In these circumstances, an Individual Voluntary Arrangement (IVA) or bankruptcy may be a more sensible solution.

Remember, too, that a DMP doesn’t offer as much protection as an IVA, for example, when your interest and charges are automatically and legally stopped. With a DMP, the creditors can only be asked to stop interest and charges – nothing is guaranteed. They may agree to stop initially and then start charging again at a later date in which case there is nothing you can do about it. It is also possible your creditors may refuse to work with the debt management company, but usually it is worth their while to deal with them as they can hope to eventually get their money back.

Be wary of which company you use for a DMP as some charge extremely high fees both up-front and monthly. Consider 15% to be about average for a monthly payment to the company running the plan. And if the company doesn’t charge you, question how they make their money. For example if they receive payments from creditors, are they really acting in your best interest?

A debt management plan can certainly be an excellent solution if you aren’t already too deep in debt, but before you take that first step it makes good sense to seek objective expert advice.

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