Debt management companies/agencies (DMCs) offer to help people in Debt.

Debt management, they will usually only help with non-priority debts. It is also usual for them to charge a fee to consolidate debt payments into one payment, which is made direct to the debt management company, or to negotiate with your creditors. Some debt management companies do not charge you a fee, but are paid commission from creditors on the assumption that the debt management company will recover some of the debt on the creditors’ behalf.

Debt Management Companies

Some creditors refuse to deal directly with debt management companies. If a creditor will not deal with a debt management company, then you will have to deal separately with that creditor.

The Office of Fair Trading defines a fee-charging debt management company as one which charges a fee for:

• Providing advice on how to restructure debts, how to alter debt repayments or how to achieve early settlement of debts.
• Providing contacts with creditors in order to make any of the above arrangements (whether this amounts to negotiation or not).
• Providing a facility for a debtor to make one single payment to the agency which it then distributes on her/his behalf to the creditors.

Reviewing the debtor’s financial circumstances and/or payments.

Is Debt Management right for me?

This solution is becoming increasingly popular for individuals who own a property, have assets and/or run businesses. It provides an easy and flexible approach to managing your debts without the legal and contractual restrictions which apply to an IVA.

A Debt management plan can be an effective solution if:

• You want the harassment of creditors to stop.
• You are struggling with unmanageable debts.
• You feel obligated to pay your debts but are unable to make the minimum payments.
• You’d like to pay one affordable monthly payment.
• You would like the interest on your credit cards and loans frozen.

Over the last 5-10 years debt management has become an extremely popular way for people to manage their debts.

DMCs are most suitable for people with between £1000 and £15000 worth of debt and are in a situation where their finance may change within a period of the next 10 years. During a plan, advisors will be on hand to aid you in every way regarding your debts. They will work tirelessly to stop all the contact you may be receiving from your creditors and get them to accept informal arrangements for repayment at a lower level. They also aim to freeze or reduce the interest and charges. You then only have to pay your debt management company one payment for all of your debts and this can be up to 70% lower than what you were previously paying.

Debt management is a fantastic solution for those who are really just looking for respite from repaying their debts and can see a silver lining in the future. Examples of this would be short term unemployment, maternity leave or an unspecified time of absence/sickness from work. A Debt Management plan is also a useful way to stall and prevent action when you are falling behind with your repayments as might be the case when you are temporarily unemployed or are on maternity leave.

A good example would be for those who are self employed and may be waiting months for a payment/payments to come in. This may mean that he cannot afford to repay the full amount owing to creditors. In the meantime however, he knows that at some piont he will be able to resume repayments or clear the debt altogether.

What are the advantages of using a Debt Management Company?

• Feeling of more control over your debts.
• Instant phone access to the debt management company – no waiting for an appointment.
• Anonymity. The debt management company deals with everything over the phone.
• Convenience – the DMC does the work for you, e.g. drafting letters to creditors.

What are the disadvantages of using a DMC?

• The fee – often equal to one month’s payment – about £200.
• Possible one-off deposit payable at the start of the debt management agreement.
• Possible administration fee of £30 a month for the debt management company to distribute payments to creditors.
• Fees paid to a debt management company will reduce what you are able to pay to creditors.
• They cannot always guarantee results. Creditors can still take action against you and don’t have to accept reduced payments or freeze interest.
• Creditors can refuse to deal with a debt management company.
• Creditors can consider rescheduled payments as a default and record this on your credit file. Where a first payment is taken as a deposit, account payments usually go into arrears.
• Where a debt management company advises you not to communicate with creditors but pass correspondence to them, you could find yourself subject to legal action taken against you by your creditors without your knowledge.
• Debt management companies will often only deal with non-priority debts. If they do accept priority debts, they are likely to consider all debts of equal importance and not pay priority debts any faster.
• DMCs cannot give financial advice to maximise your income or ensure you are claiming full benefit entitlements. They may not be able to advise you of all options open to you.
• DMCs may only want to deal with you if you receive an income and own your home so that they can place a charge on your property.
• If a DMC does not produce a realistic financial statement, you could be expected to make unrealistic payments and could be more likely to default.

If you wish to use a DMC, our associates advisor will go through all of the above with you before you commit to any agreement.