Anyone can fall into debt, young and old alike. This article from Cashfloat discusses debt management plans for young people who need debt help.
- Half of young people who are in debt attributed their debt to money mismanagement.
- Debt can affect people of all ages, but there is always a solution. Reach out to a debt charity to guide you.
Cashfloat.co.uk is a hort term loan company offering responsible and affordable loans to UK consumers. We try to help as many people as we can, not just those who need a loan. That’s why we run an informative blog that covers a huge range of financial topics.
This article is part of our guide to debt management plans and talks about how debt management plans can be used by young people. We advise all people with an active debt management plan not to apply for an online payday loan.
How Do Young People End Up In Debt?
Young people end up in debt for lots of reasons. Borrowing money to go on holiday, to buy a car or to just buy designer clothes is irresponsible and can result in debt building up far more quickly than people expect. While some young people are irresponsible in their spending, this is not usually the cause of debt in young people. To quote some figures, a survey by Citizens Advice Scotland found that around half of young people who were in debt attributed their debt to money mismanagement.
While money mismanagement can be the result of reckless spending, this is not always the case. Inexperience in dealing with finances can lead young people to make innocent mistakes which are defined as money mismanagement. Also, the other half of young people who didn’t attribute their debt to money mismanagement, attributed it to other causes. Young people are also affected by low incomes, unemployment and life changes, such as having children. Often, they are more at risk of debt because of job insecurity, low wages, a lack of assets to bail themselves out of debt and for various other reasons.
As with all people who end up in debt, once a debt problem starts it can quickly escalate and all of sudden young people can find that they are bombarded with letters and phone calls from angry creditors who are demanding their money back.
If you are a young person who has reached the stage where you are struggling to keep up repayments on your debts, it may be time to take action.
Debt Solutions for Young People
When you are in debt, one of the most difficult decisions to make is when to ask for help and many young people do not know where to turn. Of course, some are lucky enough to have parents who can bail them out and for many this can provide them with a solution. However, not everyone has a family that can help out with financial problems. Young people may feel more at a loss than adults when they are in debt and may feel as though the situation is irredeemable.
However, no debt problem is unsolvable and there are many free charitable organisations who can help people to deal with their debts. Often, the process of dealing with debts (even if the numbers seem large) is not as difficult as people imagine. It is important to remember that no situation remains the same forever and to try to keep a sense of perspective about debt.
Seeking Debt Advice and Help
There are many excellent charitable organisations which can give you advice and help if you are struggling with debt. Organisations, such as Stepchange, National Debtline and the Debt Advice Foundation can help you as you look for a solution to a debt problem. As well as being able to advise people on the best course of action to take when they are struggling with debt, many of these organisations will support people the whole way through their recovery from debt.
Avoid Debt Management Companies
When seeking help with debts it is better to seek help from a debt charity than from a fee charging debt management company. These companies exist to make profits and some of them have been known to give bad advice and to deceive their customers into losing large amounts of money on debt solutions which actually just make them money. You should always go with a debt charity, rather than a debt management company.
What are Debt Solutions?
If your debts have reached the point where you can no longer pay them off by budgeting yourself and sticking to making regular repayments as you had planned, then you will most likely need some kind of debt solution. Debt solutions come in various forms. Some of them you may have heard of, such as individual voluntary arrangements (IVAs) or debt relief orders. Debt solutions can help in a number of ways and some allow people to pay off debts at a lower rate, to avoid interest and fees on their debts or even to erase their debts completely. Debt management plans (DMPs) are one kind of debt solution.
Sometimes taking on a debt management plan is the way to solve a debt problem and this guide has been put together to explain what debt management plans are and how they can help people to recover from debt.
What is a Debt Management Plan?
A debt management plan is an informal (non legally binding) agreement that someone who is in debt makes with the people that they owe money to. Under a DMP, the debtor (the person who owes money), usually with the help of a debt organisation or charity, will work out how much they can realistically afford to pay towards their debts and then offer a monthly amount to each of their creditors (the people they owe money to). This monthly amount will be less than the minimum amounts they should be paying.
Usually, they will also ask their creditors to stop charging interest and fees on the debt while the DMP is in place. This is to stop the debt from spiralling out of control or becoming difficult to repay. If the creditor agrees to the plan, the debtor will then repay their debts at a rate that is slower than what they originally agreed to when they borrowed money, but is affordable to them. For more information on how a debt management plan works, go to Chapter 3 of this guide.
How to Set Up a Debt Management Plan
While it is possible to arrange your own debt management plan, the vast majority of people do it through a debt charity or organisation, such as StepChange. Debt management plans are suitable for people who have some spare money to contribute towards their debts, but not enough to stick to the repayment agreement that they made when they originally borrowed money. Under a DMP, people are able to clear their debts in an orderly fashion and to, eventually, get their financial lives back on track. While the basic idea behind them is simple, there are various things to consider before you start a debt management plan. There are also downsides to being on a debt management plan, particularly, the negative effect that it has on a person’s credit rating.
This guide has been dedicated to debt management plans and everything that they entail. Take a look at the contents and see if you can find the answers to any questions that you have.
How Long Will A Debt Management Plan Last?
There is no set time that a DMP will last. It will last as long as it takes to clear your debts. Some people are able to clear their debts quickly, while others can take as long as ten years. It is unlikely that a debt management plan will last more than five years and many young people incur relatively small debts, which can be cleared more quickly than that. A consultation with a debt advisor should be able to tell you how long a debt management plan would last in your case. You may be able to clear your debts more quickly than you think. It is important to bring an end to a debt problem and the length of time it takes to complete a debt management plan, is not as important as the fact that it will allow you to get control of your finances again.
While you are on your debt management plan you may experience some difficulties. Sometimes creditors will reject a proposal and continue to charge interest and fees, which can make things complicated. The damage which it will do to your credit rating may also cause you various problems. There are other potential pitfalls and considerations to make as well.
If you go to a debt charity to try and begin a debt management plan, they will take a hard look at your individual circumstances and then give you advice about the best way forward. If it looks as though it will take too long for you to clear your debts with a DMP or if you won’t be able to offer enough to your creditors, then they may suggest a different debt solution.
Getting by on a Debt Management Plan
One of the biggest mistakes to make when you are in debt is to overspend and apply for more credit. When you have reached the situation where you are borrowing to pay off debts then it is time to call a halt and rein in your spending. If you are considering beginning a debt management plan or are on one, then you should not take out any more credit. Cashfloat strongly recommends that no one takes out a payday loan or a short term loan while they are on a debt management plan.
When you have entered into an agreement for a debt management plan you will have to comply with a budget if you want your DMP to be a success. You will be required to set yourself a living allowance and you will have to stick to this in order to make payments towards your debts. This will present challenges and you will have to learn to live within your budget. While this can be difficult, it is not impossible and it is always best to stick to paying towards a DMP. A debt management plan offers a way to become debt free and to start to live your life again without pressure from creditors and even the threat of going bankrupt.
Learning Responsible Spending Habits
After young people have escaped from the problem of debt, it is important that they learn responsible spending habits so that they do not get into debt again. Here are some tips:
Do Not Repeat the Same Mistake
Once you have reached the point where your debt management plan has finished and you no longer owe lots of money it can be tempting to spend again. When credit is easy to obtain, young people are often attracted to borrowing again.
However, this is where experience should come into play. Having once been bitten by the borrowing bug it is best to avoid the chance of getting into debt again. You should avoid borrowing if at all possible and only do so if you are sure that you will be able to pay the money back.
Learn to Budget
In order to help you achieve this you should try to keep to a budget, so that borrowing is not necessary. Budgeting without a DMP will be less onerous than budgeting while you are on one. Remember when you’re budgeting to factor in expensive items that do not occur every week or every month, such as Christmas and holidays. If you own a car then think ahead about costs for the annual MOT and insurance. Unexpected costs are often the ones that can cause debt to recur. On top of this, having an emergency fund is a great idea. This is for unexpected costs on top of everything else and is money that you should only access when times are dire.
Budget planners are available online.
Keep Your Spending in Check
Keeping your spending in check is a great life lesson and one that it is better to learn sooner rather than later. If you have a budget, it doesn’t mean you have to spend all of it. There are a number of money advice websites from which you can learn good spending habits and about ways to save money.
In Summary…
Debt is a problem that can strike anyone, whether they are young or old. It is not always reckless or irresponsible spending which causes it. Whatever the cause, it is important to get on top of any debt problem as quickly as possible. If you are young and struggling with debt, you may feel a sense of hopelessness. Do not worry. All debt problems can be solved. Debt management plans are one solution to debt, which many people in the UK use and you may be able to escape your debt with one.
While the basic idea behind a debt management plan is simple, there are lots of considerations to make and there is far more to know about them than what is just in this article. For more information about debt management plans have a look at the rest of this guide.
Chapter 14:
Debt Management Plans for Self-employed People
Chapter 16:
Can Retired People Start a Debt Management Plan?
