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Debt management – Step out of the dark!

Author: Harry Jones And Facted Checked by : Shanie Capper
Last updated on : 20 May 2024


Picture this – You’ve taken out numerous loans or credit cards without seriously considering your ability to afford the repayments. Once your next payday arrives and you’ve paid all of your bills, you shortly realise you have no money left to get by until your next pay date. And so you take out another loan to help bridge the gap. Sound familiar?

Don’t bury your head!

Many of us have found ourselves stuck in the cycle of payday loans, with most not seeing a way to get out, and so the debt begins to build up and spiral out of control.

Having a high amount of debt and not enough income can cause a lot of stress, but burying your head is the worst mistake that you can make.

A lot of people don’t like the idea of going on to a debt management plan for numerous reasons. Either they are too embarrassed to speak to someone about their situation, or the stigma around debt management plans puts people off.

Some people simply don’t want to pay for a service when they are struggling financially.

Whilst there are many free debt management companies out there, there are also steps that you can take yourself to help you manage your finances and start to repay your debt.

Take the time to read this guide thoroughly – and hopefully, the time spent reading this article will be enough time to help change your life, and take back control of your finances.

Quick guide on debt management.

My Quick Loan has created the below quick guide to help you understand the steps to becoming debt free. However; please see below the guide for the full article and steps to take.

debt management


1. First steps to taking back control.

The first step to taking back control of your finances is to face it, and understand exactly how much you owe. There are different types of options available for people which depend on your level of debt and disposable income so it’s important to know your options.

Start by writing a list of all your creditors that you owe money to and the total amount owed. It would also be a good idea to list each of the account numbers so that you have these to hand when dealing with your creditors.

creditor list

Once you understand your total amount of debt, it will also help you to decide which option is best for you.

2. Understanding your priority debts.

Priority debts must always be paid first before any other debt is paid. These include;

  • Court fines (CCJs).
  • Council Tax.
  • TV Licence.
  • Child maintenance.
  • Gas and electricity bills.
  • Income Tax, National Insurance and VAT.
  • Mortgage, rent and any loans secured against your home.

These are priority debts as the action taken against you for not paying could be a lot more detrimental than not paying off a credit card bill.

For example; not paying your rent, or a loan that is secured against your property could result in you losing your home.

Priority debts cannot be included in a Debt Management Plan, however, the repayments of these priority debts will be included when calculating your disposable income.

Another priority debt would be any hire purchase agreements, such as car finance, as long as what you are paying for is essential to everyday life.

3. Debt Management Plan (DMP) explained.

A debt management plan is usually best for people who have a lower amount of debt. This is because the length of time you will be on a debt management plan for, is calculated by your total amount of debt, and your disposable income.

However, even if you have a lot of debt – you can still opt for this option if this is what you prefer.

3.1 What is disposable income?

Your disposable income is the amount of money you have left after paying for all of your bills and necessities such as food, and fuel etc.

Please see section 11 ‘How to complete an income and expenditure form’ for more details on this and for help in calculating your disposable income.

3.2 How does a Debt Management Plan work?

A debt management plan is designed to help you to manage your debts and pay them off at a more affordable rate.

Your creditors will be contacted and advised that you are struggling financially, and you will then make reduce monthly payments to your creditors until the balance is paid off in full.

There’s nothing to feel ashamed of by doing this, as most lenders have policies in place to deal with people who are struggling financially.

3.3 Debt Management Plan (DMP) criteria.

To meet the criteria for a DMP, you must meet the following criteria;

  • Have at least two creditors
  • A total debt of at least £1,000

3.4 What are the advantages of using a Debt Management company?

Most people don’t like the idea of contacting their creditors to discuss lowering the contractual repayments because they feel embarrassed by their situation. Dealing with your debts yourself can also be time-consuming, which is why debt management providers are so popular.

There are some advantages to using a debt management plan provider if you didn’t want to handle this yourself. These are;

  • Someone else will contact your creditors for you, so you don’t have to.
  • You will set up only one monthly payment to the debt management provider, who will then distribute your payment to all of your creditors.
  • The debt management company will do regular income and expenditure reviews to make sure you can continue to afford the repayments
  • You will also be sent regular updates with your recent balances.

Dealing with your own debt management plan is doable – and it also means that you are more in control of what’s happening on your accounts as you will be keeping a closer eye on them yourself.

3.5 What are the disadvantages of entering into a Debt Management Plan (DMP)?

Whilst a Debt Management Plan may sound like it’s the answer to all of your problems right now, it’s worth noting that it does come with its disadvantages. These are;

  • Lowering your monthly contractual repayments will increase the time it takes to pay back the balance you owe, as you will be paying it back over a longer period.
  • Not all of your creditors will necessarily freeze the amount of interest and charges that are incurred on your account, which may mean you won’t be debt free as quickly as you think.
  • Fee-charging debt management providers will also increase the total time it takes to pay off your debts in full as the monthly fees charged will be deducted from your monthly payments.
  • Some creditors may still continue to contact you – it’s not unusual for lenders to sell an account to a debt collection company so that they can close their account with you. However, debt collection companies can also be contacted to agree on repayments on a debt management plan, and it also means that no further interest will be charged on the account.

3.6 Will a Debt Management Plan (DMP) impact my credit file?

Unfortunately, your credit file will more than likely be compromised as you could potentially receive default notices from creditors. Your credit file may also be updated to show that you are on a repayment plan, which will usually affect your credit score for around 6 years.

However, we do not advise that you consider taking out any further credit until your debts are repaid in full, due to your current circumstances of being in financial hardship.

3.7  What are default notices?

Default notices can be issued by creditors when between 3 – 6 monthly contractual repayments are missed. Many people miss-understand how default notices are issued and believe that’s it when the payments have been missed in full. But that’s not the case.

When you originally took out the agreement, you will have agreed repayment terms – this is called your contractual amount.

Because on a Debt Management Plan, you are requesting to pay less than the contractual amount, so once you’ve either missed completely or paid less than the contractual amount for 3-6 months, the lenders are within their rights to issues a Default Notice.

A default notice will also remain on your credit report for 6 years from the date that it was issued and can impact your ability to obtain further credit whilst this is on your credit report.

3.8 What happens if I have a debt with my current bank provider?

If you have a balance outstanding with your current bank account provider such as an overdraft, that you wish to include on your repayment plan, you may need to switch to a new bank provider before contacting them to advise of your intentions, as they may close your current bank account.

4. How to complete an income and expenditure form.

Creating an income and expenditure is simple to do if you know how to excel. However, if you do not feel comfortable enough creating your own, there are plenty of free templates that you could use. Here’s a couple of useful links to get you started;

You will need to calculate your total household income, this includes any benefits that you may receive and also any other incomes from a partner etc.

Next, you will need to create a list of all of your outgoings, remember to include any of the priority bills such as CCJs, but do not include at this stage any bills for credit cards or loans.

The purpose of creating this income and expenditure is to calculate the amount of money you have to pay off your creditors.

There are some guidelines worth noting that the government say is a reasonable amount to spend on food etc per month. Here’s a useful link to help;

Example income and expenditure form.

income and expenditure


Using the above income and expenditure form as an example, having a total income of £1,950 per month and total outgoings of £1,580 gives a disposable income of £370 per month.

This is the amount of money that you will use each month to pay off your debts.

If you have a minus disposable income before entering in any loans or credit cards, there are companies out there for you contact for help.

These include any free charging debt management companies, or your local citizen advice bureau.

4.1 Can I include a joint credit account?

If you have a joint account with someone else, you can still include this on your plan. However, it’s worth noting that the creditor is within their rights to continue to contact the other person for the full outstanding balance.

5. Calculating your repayments fairly between your creditors.

Next, you will need to calculate how much you repay each of your creditors to ensure that this is distributed fairly. This is called a pro-rata calculation and may seem complicated to do. If you are struggling with the calculation, you may be able to find a free calculator online to help you to complete this step.

Step 1. Return to the original spreadsheet that you created which details all of your accounts and the outstanding balances.

Step 2. Now, taking your disposable income times this by the outstanding balance of your first creditor on the list, and then divide this by your total amount of debt. You will need to repeat this step for each of your creditors.


pro-rata calculation


You can also calculate the length of time it will take to repay your debts by dividing your total amount of debt by your disposable income.

Using the above example, having a total amount of debt of £4,297.07 and a disposable income of £370 per month, it would take approximately 12 months to repay the debts in full.

This calculation is dependent on all your creditors agreeing to freeze interest and charges. If interest is still charged on any of the accounts, this will increase the amount of time it takes to repay the debts.

6. Contacting your creditors

Now that you know your full amount of debt, your disposable income, and how much you can offer to pay each of your creditors per month; it’s time to contact them.

It’s always best to first contact your creditors by phone to make them aware as soon as possible that you are suffering financially.

They may offer you a repayment plan, however, you need to tell them that you are managing a repayment plan and that you will contact them via writing with your proposed monthly repayment.

It’s also worthwhile at this stage asking them to freeze any interest and charges, however, they are not obliged to do so, but don’t worry if they won’t.

Here’s a template letter that you can adjust to send to each of creditors.

You will need to include a copy of your income and expenditure form along with the details of each of your debts to show how you have calculated each pro-rota payment.

example letter


6.1 What if my creditors don’t agree to freeze interest?

Whilst your creditors don’t have to agree to freeze interest and charges on your account, they cannot by law refuse to take a payment from you, even if this is lower than the contractual amount.

So if one of your creditors refuses to accept your repayment offer continue to pay this amount so that it is fair to all of your other creditors.

If a creditor refuses to accept your monthly offer, they will usually send your account to a debt collection company for them to deal with this on their behalf.

This isn’t necessarily anything that should frighten you, debt collection companies can also be contacted with the same information and will usually accept the payment proposals once they see that they are calculated fairly and that you can’t afford to repay any more than what you are offering.

As mentioned earlier, once an account is passed to a debt collection company, all interest will be frozen on the account.

7. Set up the agreed payments and review regularly.

Once you have agreed your monthly repayments with your creditors, set up a standing order for the agreed amount each month.

Missing payments can result in the creditors removing the repayment agreements and commence contact for the full outstanding payments, any may continue to add interest and charges to the balance.

It is also best to continue to monitor the outstanding balances on your accounts, and regularly re-calculate your repayments to ensure that the balances are paid fairly between creditors. Simply follow the above steps again, writing to your creditors

8. Free debt management companies

If you don’t want to deal with your finances yourself but want to use a free service, there are companies out there who can help. Here’s a list of a few companies, it always worth checking reviews and doing some research before deciding which company to use.


Warning: Late repayment of payday loans can cause you serious money problems. For help, go to