More people are now suffering from debt problems in the UK than ever before. The Insolvency Service reported on the 7th August 2009 that over 33,000 people had formally declared themselves insolvent between April and June 2009 (either via bankruptcy or individual voluntary arrangement). This is the highest number of personal insolvencies since records began. Far more worrying is the fact that this figure excludes people who are insolvent but have chosen to manage the problem informally using a debt management plan. Some commentators believe that the number of people undertaking debt management plans each quarter could equal over 100,000.

A Debt Management Plan (or DMP) is an informal agreement with creditors reducing the monthly repayments that they accept so that these fit within an affordable budget. Creditors seem keener for people to use a DMP to resolve their debt problems over an IVA or bankruptcy. This is probably because with a debt management plan, creditors are not agreeing to write off any of the debt owed and still expect to receive back everything that they originally lent out.

As with all debt solutions, debt management plans have advantages and disadvantages and their suitability largely depends on your circumstances. A debt management plan is flexible in the sense that monthly payments can be changed relatively easily. In addition, not all debts have to be included and equity in a property is generally not brought into question. However, as highlighted above, there is no agreement to write off debt in a debt management plan. There is also no legal requirement for creditors to suspend interest or late payment charges. As such, it will often take a very long time to pay off debt using such a plan.

Having decided to use a debt management plan to resolve your personal debt problem, the next decision to make is how to put the plan in place. There are basically three choices. Do it yourself, employ a fee charging company or use the services of a charity. There is absolutely no reason that you should not undertake a debt management plan yourself. You can work out your budgets and how much you can afford to pay your creditors. You can then make offers of payment to your creditors and negotiate with them yourself. You would then be responsible for maintaining the ongoing payments to each creditor.

Generally the downside to doing your debt management plan yourself is firstly the time you have available and your ability to negotiate with your creditors. Negotiations can often take a significant time and you need a pretty thick skin. The experience may not be pleasant and so many people want to avoid if they can. Secondly once the plan is agreed, you remain responsible to maintaining multiple payments to different creditors. This requires careful management and record keeping. Often an inability to manage finances in this way is one of the reasons why people get into debt in the first place. There are a number of websites which now offer tools to help with DIY debt management plans which can be very helpful. However, many people prefer to hand their affairs to a third party rather than trying to deal with the creditors themselves.

If you are considering using a third party to help you with a debt management plan, there are two options to consider. The first is using a free (normally charitable) organisation. There a number of good charities to choose from. However, because the organisation is none fee charging, this does not mean that creditors will be more inclined to deal with them or reduce interest or late payment charges. There are many examples of where people have started debt management plans with free organisations only to find that a year later their debt has continued to increase because interest has not been stopped.

The alternative to a charitable organisation is a fee charging debt management company. To undertake a debt management plan on a client’s behalf, these companies will normally charge two fees. An instruction fee is charged for completing the initial financial analysis and creditor negotiation. Then an ongoing management charge will be made to cover the cost of managing ongoing monthly payments. Generally the advantage of using a fee paying company over a charity is quality of service, especially during the early creditor negotiation period. Free organisations are often extremely busy and getting an initial appointment to discuss your financial circumstances may take many weeks.

Generally, when considering how to implement your debt management plan, the best advice is speak to two or three different operations. Speak to a free organisation and two-three different fee charging companies. Choose the one that makes you feel most comfortable and gives you the highest degree of confidence that they can provide you with a good service. And remember, if you do go down the debt management route and then feel that the company you are working with is not providing a good service, don’t panic. You can change your company at any time or even use the company to do the initial negotiation and then take over the ongoing management of the plan and ongoing monthly payments yourself.