Debt Management and Credit Card Debts

If you've ever found yourself struggling with repayments to your credit cards, then you'll know how quickly the debt can grow.

With a typical credit card carrying an interest rate of anywhere between 12% and 20%, making purchases on a credit card can mean you will have to repay a lot more than you have borrowed. If you keep adding to the debt by making further purchases, it might not be long before your debt becomes unmanageable.

Can debt management help with my credit card debt?

If you can't keep up with your credit card bills under the existing terms, then a debt management plan could help to make your debt repayments more affordable.

In short, a debt management plan is an agreement between you and your creditors (in this case your credit card providers - and perhaps other unsecured creditors as well), in which you will pay a reduced amount towards your debts every month. This helps you make sure you can repay everything you owe, but at a pace that you can manage.

This could have a negative effect on your credit rating - the fact that you are no longer repaying your debts under the original terms will be noted on your credit history - but for a lot of people, the lower monthly payments will be the most important thing.

It's possible to arrange a debt management plan on your own, by contacting your creditors and negotiating new repayment terms. However, because this can take a lot of time, many people prefer to arrange their plan through a professional debt management company.

The advantage of this is that a debt management company may negotiate with your creditors on your behalf. Rather than going it alone, you could benefit from the experience of a company that will have dealt with many people in your situation.

As well as reducing your monthly outgoings, your creditors may also agree a freeze or reduction in interest and other charges. This means your debt won't grow any bigger (or at least it won't grow as quickly).

However, be aware that your debt management plan could still mean you will pay more in the long run. Since it will take you longer to repay the debt, you will also pay interest for longer. Even if you have had your interest rate reduced, this could ultimately mean you pay more interest overall.

How do I know if debt management is right for me?

As with any debt solution, this really depends on your circumstances.

Debt management plans have helped many people clear their debts by reducing their payments and making them more affordable. However, if your debts have grown so much that you can never see yourself repaying them in full, you may want to consider another debt solution, such as an IVA (Individual Voluntary Arrangement), which could help you to avoid bankruptcy.

You should always speak with a professional debt adviser before making any decisions. A debt adviser can offer help and guidance on the best way to tackle your debts, based on your circumstances.