Pros and Cons of a Debt Management Plan

With BBC headlines warning of a potential wave of business closures in 2023, you may fear for the financial viability of your own company. You’re certainly not alone. With personal and professional resilience being tested greatly through global and local external influences, the number of UK companies in financial distress has risen dramatically.

If you are feeling the pinch of rising costs of living and doing business and are finding it difficult to repay your debts as they fall due, you may be wondering what options are available to you to meet your debts and improve your financial position.  One of those options is a debt management plan, so you may want to explore debt management plan pros and cons.

What Is a Debt Management Plan?

According to Forbes Advisor, ‘debt management is a structured plan for paying off unsecured debt, such as credit cards, medical bills, personal loans, and other lines of credit.’

To bring this structured plan to what may feel an overwhelming debt, it is wise to consult a financial professional who can take an objective look at your company’s position and advise whether a debt management plan is the best option for you.

Irwin Insolvency are licenced and professional insolvency experts who can guide you through these challenging financial times and assess your debt management options, with the view to your business meeting its financial obligations and coming out stronger.

Irwin Insolvency offers a suite of services depending on your business’s unique circumstances. They can explain debt management plan pros and cons, assist you in making an informed decision, and suggest practical steps to manage your debt and restore the financial viability of your business.

Debt Management Plan Pros and Cons

First, let’s consider the advantages of debt management plans.

Pros of Debt Management Plans

1. Become debt free. The goal of a debt management plan is to honour your debts. Once a debt management plan is completed, you will have repaid your creditors and be debt free.
2. With a licensed insolvency expert assisting you with your debt management plan, they can often negotiate better terms with your creditors, meaning you may actually pay less.
3. Time limited. A debt management plan is structured so that your debt is usually repaid within two to five years, which can be an enormous relief on a personal as well as a financial level.
4. Streamlined payments. A debt management plan is ‘designed to help individuals reorganise their personal finances by consolidating all debts into a single, more manageable plan’.
5. Avoid the negative follow on of unpaid debts and potential collection actions or insolvency.
6. Credit score. This final point occurs on both debt management plan pros and cons. Clearly, any inability to repay debts is going to see an impact on credit rating. A debt management plan is likely to see a short-term dip in credit rating, followed by a long-term increase in credit rating. According to an international article in late 2022, a debt management plan enables you to ‘build a positive payment history, an important credit scoring factor, and repay accounts in full’ with companies typically emerging in a much stronger financial position.

Cons of Debt Management Plans

1. Limited to certain debt types. Debt management plans are only utilised for unsecured loans, not for mortgage, student loans or car loans.
2. Creditors may not agree to the debt management plan. If one or more creditors do not agree to enter the plan, this reduces the efficacy and efficiency of the plan.
3. Losing access to credit. One factor in the structure of a debt management plan is that existing lines of credit are stopped, and you cannot take on more credit until the plan is completed and creditors are repaid.
4. Credit score. As mentioned above, the impact on your credit score occurs in both debt management plan pros and cons. There is likely to be a short-term loss in credit score followed by a long-term increase in credit rating as a result of the debt management plan.

How Can Irwin Insolvency Help with Your Debt Management?

As financial pressures continue to mount, your business doesn’t need to become another unfortunate statistic. At Irwin Insolvency, we’re experts at helping businesses manage debt to restore business viability and success.  Contact Irwin Insolvency today for professional and tailored advice.