When it comes to Debt Management Companies you have to be careful who you deal with. Selecting the right debt management company can seem like a daunting task but it needn’t be.
There are a number of companies who advertise offering to set up a debt management plan for you and they will charge a fee for their service. There’s nothing wrong with this if they are a good provider and it could be worth it. However if you get a bad provider then paying for your debt management plan is not ideal.
With this in mind it is important that you can find a company who you can trust. In this guide we will: –
- Take a look at what a Debt Management Plan is.
- Find out how a Debt Management Plan works.
- Learn about what questions you should ask before entering into a Debt Management Plan.
Debt Management Plans Explained
Now we know what to expect in this guide it’s time to look at how a Debt Management Plan works. Essentially a Debt Management Plan is an agreement between you and your creditors to repay your debts at a reduced rate. This makes repaying your debts more affordable to you, and your creditor (the person you owe money to) gets their money back, albeit slower than it would be if you was making your contracted repayment.
You can set up your own debt management plan, and there is a guide on how to do this on this blog. You can also appoint a debt management company to set up and administer the plan on your behalf which is much easier than doing it yourself, but it can also cost you money.
In most cases the interest is frozen on your debts so that every penny you repay reduces what you owe. The way you calculate how much you can pay to your creditors is by working out your budget then seeing how much money you are left with. The money you are left with (or your disposable income) is what you use to make payments towards your debts. Each creditor gets a fair share of your disposable income (meaning your biggest debt gets the biggest payment).
A debt management plan is an informal arrangement. What this means is a creditor can still take further action against you if they wish. So depending on how much debt you have, and the types of debt you have, then it is wise to consider getting professional debt advice before deciding on if a debt management plan is for you.
The role of Debt Management Companies
There are two types of debt management companies broadly speaking. There are fee charging companies that charge for their services, and there are charities that offer free and impartial debt advice such as StepChange Debt Charity.
Organisations such as StepChange Debt Charity, National Debtline and Payplan are not there to make any money from you. Instead they can provide you with debt advice without charge and in an impartial manner. One of the debt solutions they can help you with is a Debt Management Plan.
There are other organisations out there who claim to offer free debt advice. Typically they will find other ways of charging you for their services despite the advice being free so be careful. It’s a free market so feel free to shop around, and not feel pressured into signing up to something you are not comfortable with.
One disadvantage of the free agencies is that they can be very busy, and it can take some time for you to get the debt advice you need. On the other hand, the fee charging companies will typically be able to help you faster, because they are providing a paid for service. They may be able to negotiate more favourable terms with your creditors which could make the fees worth your while. However you will need to weigh up all of your options before deciding, as it is a big decision.
Handy things to keep in mind
- Will it be worth you paying for your Debt Management Plan?
- How much help do you need? Could you set up your own Debt Management Plan?
- Is the advice you are getting actually free?
- Have you considered or been advised about other debt solutions?
Finding the right Debt Management Company
When choosing between debt management companies, there are a few things you should keep in mind during your search.
How long will you be in debt for? If it is going to take you forever to repay your debts, then maybe a debt management plan is not the most suitable solution for you. Any debt management company worth their salt will advise you of this if it looks like you will be in debt for a long time.
What exactly are you paying for? When paying for your debt management plan find out what you are paying for and what you are getting in return. Remember that you shouldn’t pay up-front for debt advice. For example will the debt management company be making payments on your behalf? Is there someone dedicated to your account if you have any queries or need support? Does this assistance run for the term of your debt management plan?
Is the company regulated? Does your chosen debt management company follow the guidelines set out by the Office of Fair Trading? You can check the OFT consumer credit register if you have any concerns.
How much will you be paying? The typical charge is around 15% of your monthly repayment. It is also possible that your first months payment could be consumed by administration costs. These fees should only be charged once your debt management plan has been set up.
Is there a Debt Management Company you can recommend?
There is (in fact there are several) and you can get in touch with them on the Debt Help page. The organisations listed on the debt help page will act in your best interests and find the most suitable debt solution for your own situation. You can also get in touch with the free organisations I mentioned earlier in this guide on the Debt Help page as well.
Remember that when you are looking for a debt management plan, you need to look at what service is offered, especially if you decide to use a fee charging company. The one that is most suitable for your own needs is the best place to start.
When you take on a debt management plan, your credit rating will be affected. This is because you won’t be making your contracted repayments any more. It is not something to be considered without careful thought as to the consequences. It might be you can budget your way out of your debts or reduce what you spend to help make ends meet.
A debt management plan can be a good option for a temporary financial problem. However if your situation isn’t likely to improve in the near future then other debt solutions might be more appropriate for you. Because a debt management plan is an informal arrangement, you might find that some of your creditors rejected your offers of repayment, and they may take things further such as initiating court action to recover what you owe.
You can find out lots about debt here at Debt Advice Blog, for example you can look through the various debt solutions, read about my own debt problems and find out more about budgeting. You can also find out how to set up your own debt management plan as well. Good luck.