Choosing the right debt management company
Originally a Debt Management Plan was a County Court order initiated to help borrowers repay debts where they could no longer manage the repayments. If the finance or loan companies had sought to retrieve the debt through the Court and the Court deemed the borrowers financial position insufficient to be able to repay the debts they would consider all outstanding debt, regular financial commitments, and from those figures renegotiate a new manageable amount and repayment term in which to reimburse all debts and still manage to pay on-going obligations such as rent, utilities, food and necessary payments required to live.
Debt Management Companies
With Debt Management Plans becoming widely accepted many borrowers saw the advantage of dealing direct with the lenders themselves in order to find the same amicable agreement but that may help them avoid a Court Order or a mark on their credit report. However, not many people have the confidence or desire to deal with the lenders direct so Debt Management Companies stepped in to do the job for them.
Free or Fee?
In effect there are two types of Debt Management Company — those who charge a fee for the service and those who don’t. There are many companies who will promote a free service but which isn’t necessarily the case. A common way to hide the fees is to add a percentage ‘handling’ or ‘processing’ charge for receiving payments from you and making the payments to your creditors, this is generally around 15%.
The main free options are charitable agencies set up in order to help you consider the best way for you to handle your own debt issues.
Each of these offer one-to-one advice in managing your finance and ways to control any money issues that may have become out of control. The problem with these charities is that there are so many new applicants appealing for help each day that they simply can’t keep up with demand and the backlogs for interviews are too long to be able to offer the help as and when it is actually needed.
Fee-charging debt management companies
Because the fee-charging companies are a commercial entity it’s in their best interest to see you when you need them the most and to find an agreement that helps both you and your debtor reach an amicable solution. In turn they then take their fee or percentage in the process.
They’ll often deal with your problems quickly and efficiently making the fee they charge quite worthwhile for the peace of mind it buys and too in the simplicity of handling every step of the process for you. Often, they can negotiate a better deal because of their experience, knowledge and professional standing, showing that there are some advantages to choosing a fee-charging option.
Choosing the best debt management company?
Ask your local Citizen’s Advice or the National Debtline for a referral.
Find a company with a good reputation for honesty and efficiency, so whether that comes from one of the charitable agencies, a friend or family member, or even a positive Internet review then a good reference from a trusted source is a good place to start.
Are they FCA Authorised?
The Financial Conduct Authority (www.fca.org.uk) is a body that dictates a minimum set of standards for any company providing debt management services to adhere to. You can check on their website for those who are registered with them. If any company fails to meet their standards you can approach the Financial Ombudsman Service to make your complaint and find how to deal with improper treatment.
Are they members of other trade associations?
If so this means that they’re regularly assessed and audited in order to make sure they’re adhering to standards and codes of practice set out to protect their clients. The main association is the Debt Managers Standards Association (DEMSA). Their code of practice is approved by Trading Standards so is highly regarded and reputable.
Are they members of the Debt Management Plan Protocol? This body was set up by the government’s Insolvency Service and also shows the company’s commitment to providing an open and fair service.
Find out how the plan will work
You should be provided with the full cost of the plan each month, the total cost you will repay over the full term of the plan, how long you will be paying the plan until you have repaid all of your debt and how much of the total cost in fees will be what you pay to the debt management company. If the company is still in negotiations with any of your creditors then they should make clear that any proposal figures are estimates and you should only really enter a contract when the final and correct figures are presented.
Your contract should outline any deposit you will have to make, any additional on-going fees or a set up payment that isn’t included in your monthly repayments. Make sure you understand how all fees are to be paid for and how they impact the total cost of repaying your debt.
Can you cancel?
A debt management plan isn’t a legal contract so you should be able to cancel at any point you choose. You should read your contract thoroughly before committing to a plan to make sure you fully understand the implications and costs incurred if you do fail to make payments or choose to leave the plan before the completion of the term. You shouldn’t sign anything until you fully understand all the rules and eventualities of each stage of the agreement.
What support will you get?
You should check with your company how they would handle the running of your plan. Will you be given your own personal plan manager or will any issues arising be handled by whichever member of their team is currently available? Will they be available to offer further advice on your debt should problems arise? If your circumstances change again will they be in a position to renegotiate again to handle your new position?
The golden rule — never pay for advice
You may have to pay a company to manage your debt plan for you, often it’s the best way to get yourself out of a sticky financial situation with the least interruption into your life, but always remember that you should never have to pay for the advice.
You should be able to talk to as many providers as you wish in order to gather information about each of them, from levels of service to all and any costs in order to make your decision of which will be the best option for you — but the advice should always come for free. Never pay for anything until your plan is organised and you’re ready to commit to it. Only once you’ve signed the agreement should you have to begin your payments.