A brief overview of Debt Management
Debt Management is designed for people who cannot afford to make the minimum payments towards their debts and are struggling to stay afloat financially. It is classed as an informal arrangement which means it is not legally binding so there is no need for court appearances or visits to or from solicitors. The basic outline for debt management is you make one lower, affordable fixed payment per month to your creditors and as part of the agreement, your creditors agree to deal with your representative (your Debt management Company) which eliminates any future harassing phone calls and letters. Interest and charges are frozen the majority of the time allowing you to repay the debt faster.
How does it work?
A Debt Management Company will go through your income, expenditure and creditor details with you. From this they will determine a more suitable monthly repayment figure for you which you must repay on time every month. Once agreed they will send the relevant paperwork out to you which you must sign and return giving them permission to act on your behalf with your creditors. Once this has been received the company will contact all your creditors and set new arrangements in place freezing all interest and charges and begin repaying your creditors on a pro-rata basis. i.e. the creditor you owe the most amount of money to will get the largest share going down on a sliding scale.
But if they freeze the interest and charges, won’t they make any money?
No, but think about how much money they have made off you already, probably quite a lot! They also take into account that if they don’t help you with a plan you situation may worsen and you could end up entering into an IVA or even going bankrupt therefore they would not receive anything. This way at least they are getting their money back.
Is a Debt Management Plan right for me?
It all depends on your financial situation. If you are struggling to make payments and even missing them on a monthly basis, Debt Management is definitely worth considering. If you fail to seek debt assistance your situation may worsen and you may fall victim to CCJ’s (County Court Judgments) and visits from bailiffs. The most serious situation could be bankruptcy, which risks your home and belongings being repossessed.
What about fees?
Most Debt Management companies will charge a fee for their services which is usually the first two payments you make to them plus a monthly percentage (usually between 10-20% of your payment). It is worth shopping around though before signing up with any to make sure you get the best deal available. Try visiting Debt Forums or Blogs on the internet and read up on people’s experiences. You may find recommendations which would be very useful as work of mouth is usually always the best form of publicity. There are also non-fee charging companies out there in the form of government funded charities and organisations.
Will my credit score be damaged?
If you take out a Debt Management Plan you credit rating will be affected until you complete the plan, you will still be able to obtain certain forms of credit. It will not be affected as much as if you had entered into an IVA or filed for bankruptcy, in which case is more serious and can hinder your ability to obtain further credit in the future, i.e. for a mortgage or loan.
How do I know the Company I use is ethical?
The Financial Help industry can be a scary place. Go onto Google and search the thousands of Debt Help Companies out there offering unbelievable solutions to get you out of debt. The Financial Help industry is still unregulated which means you don’t have to be qualified to work in Debt management. This can make it a very nerve racking experience when looking for the right company to help you.
It is important to check some vital to check some points with before dealing with any Debt Management Company, these are;
- Make sure they are licensed with the Office of Fair Trading (They must have a 'Consumer Credit License')
- Make sure they have a Compliance Procedure
- Check they have ‘Cooling Off Periods’
- Ask the company if the calls are recorded and monitored
- Don’t be afraid to ask questions, i.e. How many staff do you have? How long have you been trading?
Who can I contact about a Debt Management Plan?
CompareDebtHelp.co.uk is a website setup to help people find the right solution for their circumstances. Simply enter a few details into their form and based on the information you provide, the website will calculate the most suitable debt solution and then recommend a company that specifically deals in that area of expertise. All the companies are registered with the Office of Fair Trading so you can be rest assured your case will be dealt with professionally.
Trust Deed Example
Example Unsecured Debts
|2||Credit card 1||£6,812|
Your Monthly Repayments Would Be
a Scottish Trust Deed £748
(total contractual repayments)
a Scottish Trust Deed £295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances. For more information on our fees click here