If your overdraft is constantly up to its limit, you are running out of money before the end of the month and have been drawing cash from your credit cards to pay other debts it is likely that you have a financial problem. Given this a solution has to be found and the most normal reaction is to try and borrow more.

You will generally first ask your bank for a loan or an extension to your overdraft. If this fails you may then turn to other forms of lending. However borrowing more is generally never the answer as it will often make things worse.

The more you borrow, the higher your monthly repayments become and the more difficult it is to make all of the payments. If you see yourself getting into this situation this is the time to consider a Debt Management Plan (DMP).

Consider a Debt Management Plan when you cannot afford your debt repayments

Rather than borrowing more and making your overall debt worse, it is far better to stop borrowing and manage your cash in a different way.

A DMP allows you to push your unsecured debt payments to the back of the queue. It allows you to prioritise how you spend your cash so that all of your essential living expenses are paid first of all.

In this way all of your priority expenditures such as your mortgage or rent, your household bills and utilities are protected and you know you have enough to pay these without borrowing more.

You then use what is left over from your income (also known as your Disposable Income) to make payments to your creditors.This process should be started as soon as you feel your only other option is to borrow more.

Do you want help to start a DMP? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

How will a Debt Management Plan impact your credit rating?

Starting a DMP means that you will make reduced payments to your unsecured creditors. This in turn will seriously damage your credit rating. Of course this situation is not desirable. However ultimately your credit rating will not be damaged any more than it would be if you continue trying to pay your debts normally.

If you carry on trying to borrow to make your payments eventually you will reach a point where you will not be able to borrow more and you will be forced to default.

This will in turn seriously damage your credit rating thus having the same effect as starting a DMP. It is just that in the mean time you will have built up a bigger debt problem which is more difficult to solve.

Should you consider alternative debt solutions?

Once you are in the situation where you cannot afford to continue making your monthly payments without borrowing more, this is the time when you should consider implementing a debt management solution.

However a DMP is not the only solution available. You should of course look into the alternative options such as an Individual Voluntary Arrangement (IVA) and even Bankruptcy.

Each of these different debt management solutions have their own advantages and disadvantages and will suit different people differently.

Take timely action to solve your debt problem

Once you know that you are in financial difficulty and feel that your only option is to borrow more, you should consider a DMP. Try not to delay for too long as in the mean time the problem will only be getting worse and potentially more difficult to solve.

The Plan will reduce the payments you have to make to your unsecured creditors and free up cash enabling you to maintain your essential living expenses.

However, you should not start until you have understood all of the options and decided that it is the best solution for you. Working with an expert debt advisor will help you achieve this.