There are many companies that are offering debt management plans and not all of them work in your best interest, with some of the less savoury companies suggesting whichever solution offers them the most commission, rather than the solution that will be the best for you.
To cut out these companies, two regulatory bodies were created to help control the debt management industry. The trade bodies are the Debt Managers Standards Association (DEMSA) and the Debt Resolution Forum (DRF), members of both of these organisations are regularly inspected to ensure that they follow strict guidelines and offer best advice to their clients and prospective clients.
Members of these bodies all need to have up-to-date consumer credit licences and follow a strict set of guidelines created by the Office of Fair Trading (OFT) called the Debt Management Guidance. This is a lengthy guide on how to run a debt management company that works for the client rather than the company, this means that DEMSA and DRF member companies will look at your situation, answer any questions you may have, and then suggest the best course of action to help you get out of debt.
Regulated Debt Management Companies
Regulated debt management companies do not charge for advice, and there is no obligation to actually use any of their services. However, depending upon your circumstances, and the course of action decided, there may be a fee charged. For example, if a debt management plan is the suggested route, and you agree, then the company will charge a small fee in order to give you the best service. As in most walks of life, you get what you pay for, and paying the fee ensures that you get helpful, trained staff that work for you not your creditors.
Debt management plans are possibly the most popular of all debt solutions, they are an informal debt solution that allows flexibility on all sides, and are easily suited to your needs. A more formal solution such as an IVA may be right if you owe lots of money to many different creditors, as quite often you can write-off a portion of the debt at the end, and as it is a legal process, once your creditors have agreed, then they can’t change their minds. But then again, neither can you.
On a debt management plan, there is lots of negotiation between your creditors and ourselves, and we negotiate a payment scheme based upon your monthly disposable income (MDI). This MDI takes into account all of your income and expenditure to decide exactly what you can afford to pay, our trained advisors will discuss with you the places where you can cut your expenditure in order to free-up more money for yourself and your creditors.
When looking for a suitable debt solution, many companies offer a debt solution tool, often called a debt calculator, this is a handy tool where you enter information about all of the money you have coming in and going out, how much you, and to how many people, and it will suggest a solution, including debt management plan, IVAs and bankruptcy. Although useful, it only gives you an indication of what the best solution could be, you need to talk to a trained debt advisor to get the best advice. Your case is completely unique, everybody has a different set of circumstances, and an automated tool simply can’t look at all the variables that a human being can, and it this human touch takes makes a debt management plan work.
Benefits of Using a Debt Management Company
One of the most stressful parts of getting yourself in debt is the creditors’ constant attempts at contacting you via mail and telephone calls. Once on a debt management plan, these, often haranguing, correspondence are likely to stop, we cannot guarantee that all creditors will definitely stop all contact as they are often simply automated services, and even if they do, you can answer the phone and tell them we are dealing with your case from now on, or simply forward their letters and let us deal with them for you.
Also, most creditors will recognise that although you are struggling to repay them, by setting up a debt management plan you are taking steps to rectify the situation, and will freeze any interest and charges which you may be having added on to your debts. They don’t have to do this, however we have a great working relationship with the creditors and more often than not we can get them to stop any extra charges.
A question we are regularly asked is, “is my credit rating affected if I’m on a debt management plan?” Simply put, yes, your credit rating will be affected in the short to medium term, and possibly in the long-term. However, this isn’t to do with the solution itself, you are on a debt management plan because you are in debt and unable to repay your creditors, this will already have had an adverse effect on your credit rating. A debt management plan enables you to repay your debts and slowly rebuild your credit in the future. These are not quick solutions, and except for winning the lottery, there’s no such thing.
What Should You Look For In A Debt Management Company?
When choosing a company for your debt management plan there are several things you need to decide / look for, these include;
- Do they figure out a realistic monthly disposable income?
- Do they have a valid consumer credit licence (CCL)?
- Are they a long-standing company, with a good reputation?
- Are they regulated by DEMSA or DRF?
- Do they have up-to-date testimonials?