Debt Management

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Meaning and definition of Debt Management

Debt management refers to an unofficial agreement with unsecured creditors for repayment of debts over a specific time period, generally extending the amount of time over which the debt will be paid back. Under debt management, the creditors are offered a Statement of Affairs (SOA). Through this, your disposable income, as estimated by the debt management company, will be proffered to the creditors and they will decide on whether to agree to it or not.

Once agreed upon, you are supposed to pay regular installments to the debt management company. These installments are then distributed amongst your creditors thus making it easier for you to repay your debts. The basic aim of debt management is, therefore, to help you clear your debts at a compact level over a fixed time period thus helping you make a new start with your finances.

Who can use debt management?

Debt management is an opportunity for those who:

  • are facing a short term cash flow problem and believe that their financial position will change in the near future
  • are not able or do not want to take out any additional loans or use their equity in their home
  • want to do away with the pressure from creditors
  • want to pay off all their debts but are struggling with their present repayment schedule

Pros and Cons of Debt Management


  • Debt management is flexible. This implies that with changing circumstances, the employed plan for debt management can be altered accordingly.
  • Debt management reflects your responsible attitude towards your debts which might be looked upon favorably by the prospective creditors.
  • There are no contracts with the debt management company thus enabling you walk away and make alternative arrangements at any point where you are not satisfied with the services.


  • If not otherwise negotiated, the interest payments will accumulate thus leaving you with a huge sum at the end of your repayment period.
  • The terms of your credit agreements with the creditors are violated.
  • You might find it expensive to obtain credit in future.

It might take a significant time for repaying your debts.

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