Interest definitely isn’t boring, in fact paying as little of it as possible should be of a great deal of interest to anyone in debt. The bad news is that if your lenders have good reason to believe that you can afford to pay back your debts in full (i.e. with the interest charged at a standard rate), then they will have very little motivation to reduce their profits by agreeing to lower interest, however, if you can demonstrate that it is legitimately difficult for you to make standard repayments, then your lender may be willing to accept reduced payments, indeed they may well see it as being in their best interests to do so (even if they do not admit the fact).
The basics of debt-management plans
A debt-management plan is basically an agreement with your lender that you will make reduced payments to them. Lenders may also agree to waive, or at least reduce, the interest charged. Debt-management plans may be time-limited or open-ended, but even if your lender is prepared to allow you to continue on the agreed plan for as long as you need to, you will usually still be expected to inform them of any change in your circumstances which would allow you to pay more. Debt-management plans may be arranged directly with a lender or with the help of a debt-management charity.
Debt-management plans from a lender’s perspective
From a lender’s perspective, if you really can’t pay off your debts at full cost, refusing to show any flexibility could wind up driving you into insolvency, which may wind up with them receiving less money and possibly a whole lot of negative (social) media coverage. Even if they avoid overt bad publicity, they are still answerable to a regulator and, ultimately, to the government.
In other words, if you feel you have a reasonable case for asking your lender to allow you some flexibility with repayments, then you are unlikely to lose anything by putting it to them.
Debt-management plans and your credit rating
Debt-management plans are likely to hit your credit rating, although much less so than going insolvent. This should not deter you from entering one if it is clearly the best choice in your situation, however, if you are a borderline candidate for a debt-management plan, then you might want to try “snowballing” to reduce your debts before deciding whether or not you do need to come to a more favourable arrangement. You might also want to try to exit a debt-management plan as soon as possible, even if you still have debts, as long as you are confident that you can continue your progress towards a debt-free life using the snowballing strategy. This will set your credit rating on the road to recovery.
Debt-management plans are not insolvency
This point is very important and worth repeating. It is in the highest degree unlikely that you will be forced to sell major assets, such as your family home, in order to pay back your debt, at least, not as long as you stick the the agreement. Having said that, if you do have major assets, it may be worth considering selling them to pay back your debts and start again. While this may seem painful, it may, ultimately, be less painful than spending an extended period of time paying off debts, with or without a debt-management plan. Alternatively, you may wish to look into ways to make your home work harder, from a financial perspective, for example by taking in a lodger under the government’s “rent-a-room” scheme. While this can be a useful way of earning some extra money (possibly tax-free), remember to check the formalities of it before you commit, for example, confirming that your mortgage-lender allows it and seeing what insurance you will need.