There are two principal types of debt management plans; these are plans that will allow you to repay all the money you owe but over a longer period than you envisaged initially and plans that will reduce the total amount of debt that you repay.

Of the latter there are two principal classes: the first class is plans that make informal arrangements with creditors to reduce or freeze interest payments and other charges plus allowing an increased period over which the debt must be repaid; and the second class involves making formal arrangements with creditors to achieve the same but with a legally binding contract known as an IVA or an  Individual Voluntary Arrangement.

Which one is suitable for an individual depends very much on individual circumstances, but in general terms the kind of debt management plan that repays all debts is appropriate for people who see their situation improving in the future. They know that they will be able to repay their debts eventually, but they need more time in which to do so.

If it is at all possible, then this is by far the best way for two reasons. The first is that this kind of plan will not degrade a person’s credit rating and the second is that it maintains the integrity of the borrower; it allows the borrower to keep to his original promise to repay what he borrowed. This type of plan generally involved loan consolidation.

If this is not possible, and there is no way that the borrower will be able to repay his debts within a reasonable time span, then the second type of debt management plan is necessary. An IVA is only appropriate if debts are at least £15,000 and as described above it is a form of insolvency that has parallels with bankruptcy but has less of a stigma and allows the debtor to repay a larger proportion of the money they owe. All debts are written off over five years, but it leaves a stain on the individual’s credit rating that will last for at least eleven years.