Debt Management Information
- Are you in debt?
- Do you feel there is no way to deal with it?
- Is the debt going up rather than down?
- Are your payments too high?
- Are you paying too much interest?
- Are your creditors hassling and stressing you out?
- Is it complicated paying so many people each month?
All of these problems and more can be dealt with by a debt management plan. This page will help to explain everything you need to know about debt management.
There are many options to deal with debts. Although it’s very easy to bury your head in the sand and try and forget about debt problems, it’s much better to tackle them head on. We’ve never seen a debt problem that can’t be dealt with.
What is Debt Management?
Debt Management is a process where a debt management company helps you to make your payments on your debts more affordable. The payment plan that is devised is known as a debt management plan.
If you are struggling to keep up the payments on your debts, then debt management could be the solution. There are a number of things that debt management companies will try to achieve for you. These are:
- Stopping the interest on your debts
- Reducing the amount you pay to an affordable level
- Negotiating with your creditors for you
- Carrying out reviews every 6 months
- Enabling you to make one monthly payments for all of your debts
- Dealing with your creditors so you don’t have to
Stopping the interest
A good debt management firm will get your creditors to stop charging interest on your debts. This means that it is possible that your debts will be paid off quicker however this is not always the case. If your payments are reduced drastically then it is possible that even with 0% interest your debts will take longer to pay off. However in many cases it is possible to stop the interest charged, reduce the payments, and pay off your debts in less time than under the standard terms.
Under OFT (office of fair trading) guidance, debt management companies are not allowed to guarantee that they will stop the interest. It is impossible for any company to guarantee that another company will or won’t do something, which is fairly obvious. However in the vast majority of cases interest will be stopped on a debt management plan. Also the debt management company will have experience about which creditors are most likely to not stop interest, and you will be advised of that before starting the plan.
Reducing your payments
A detailed financial review is carried out so that you understand your financial situation in depth. This includes looking at your income, expenditure, assets, and liabilities. With this information you can work out if debt management is right for you, and also calculate how much you really can afford to pay to your creditors.
Armed with this information you are able to negotiate with your creditors. You can send them a detailed study of your financial circumstances along with other information, and use that to negotiate a payment plan that is affordable to you whilst at the same time acceptable to them.
Negotiating with your creditors
If you have been dealing with your creditors you may feel that they often don’t seem to understand that they are not the only company that you owe money to. Your debt management company will make sure that all of unsecured creditors are included in your debt management plan. This means that they tell all of your creditors exactly who you owe money to, and also propose fair payment plans to all of them. This is done by offering pro-rata payments to each creditor. So say for example you owe £5,000 to Barclaycard and £2,500 to capital one, then Barclaycard will get twice as much of your disposable income than capital one. Obviously some people owe 10 or more companies money, so this needs to be managed perfectly and calculated to the nearest penny. Of course they will work all this out for you and make sure our proposals are fair and as likely to be accepted as possible.
6 Monthly reviews
Debt management companies should carry out financial reviews every 6 months rather than the industry standard of every year. What this means is that every 6 months they’ll give you a quick call to go over your finances again. It is likely that something may have changed during that time. It could be that your income has gone up or that your living costs have increased. They will document all of this and send new offers to your creditors on that basis. They will want to get your plans arranged, but also keep them arranged. By doing this every 6 months you and your creditors will know that the best payment amounts are being paid each month.
Make 1 monthly payment
The debt management company will simplify the payment of your debts by enabling you to make just one monthly payment of your debts to us instead of you paying all of your creditors. So they receive a payment each month from you, and then distribute it to your creditors within 5 days (maximum) of receiving it. If you have lots of creditors this simple benefit makes payments much simpler.
This is how debt management companies deal with payments and is the industry standard.
Dealing with your creditors
Issues can and do arise with debt management plans from time to time. On a debt management plan you should contact your debt management company at any time if you have any problems with your creditors. If you get any letters or receive any phone calls then you can give them a call, and they will call your creditors for you and resolve any issues they may have. You don’t need to worry as you once did about your debts because you will know that they are a phone call away and will always do our best to resolve any issue or problem you are having.
What are the benefits of a debt management plan?
Stopped or reduced interest
In most cases the debt management company will be able to stop your creditors charging you interest on your debts. This means that you will be able to pay your debts back much more quickly even if you are making lower payments. Whilst no debt management company is allowed to guarantee they will stop the interest on your debts, this usually happens. The benefit of stopped or reduced interest alone makes debt management plans a really powerful debt solution. However, there are many more advantages to a debt management plan.
The debt management company will be able to reduce your monthly debt payments to a level you can afford. A detailed financial review will be carried out to fully understand your entire financial circumstances. Your income, expenditure, assets, and liabilities will all be looked at in detail to see what will be the best debt solution for your particular circumstances.
With this financial review the debt management company will understand what you can afford to pay on an ongoing basis and will negotiate with your creditors to allow you to repay that amount. There is no point arranging a debt repayment plan that is not sustainable on an ongoing basis. Once you are paying what you can actually afford to pay (with the interest stopped), you will actually be paying back the debt and will know that there is an end in sight.
A debt management company will not only negotiate your debt management plan, but they will keep it negotiated! Most payment plans with creditors last for 6 months, so a good debt management company will closely review your situation and renew debt management plans every 6 months. It is this constant monitoring that means that you have far less hassle from your creditors.
The debt management company will deal with every aspect of your relationship with your creditors. You can forward any letters you receive to the debt management company and if creditors call, you can tell them to call your debt management company. The office of fair trading debt collection guidelines state that creditors are not allowed to bypass your appointed debt representative. Simply said, if you don’t want to speak with your creditors again you won’t need to. You’ll have somebody to deal with all of that and more.
The debt management company will deal with all of your payments. For example, say you owe 10 different creditors money. Rather than dealing with 10 people to pay, you pay the debt management company one payment and they distribute this to your creditors for you. It’s not a loan, just a much easier way to manage your money. For your own peace of mind, you need to know that the debt management company has an OFT (office of fair trading) consumer credit licence, which enables the company to deal with money in this way.
Flexible debt management plans
As debt management plans are informal arrangements, they can change if your circumstances change. If your financial situation improves you can make higher payments, and if your situation gets any worse you can always reduce your payments. This way you always know that your debts are being dealt with properly.
Disadvantages of debt management plans
There is no guarantee that the interest will be stopped. In most cases this happens, and often when it’s not stopped it is massively reduced. However it’s impossible to ever guarantee that someone else will or won’t do something. As a debt management plan is an informal arrangement, the creditors don’t have to go along with it. This is where the skill and experience of a debt management company comes into play.
In a debt management plan, none of the debt is actually written off. If you are in a situation where you owe more money than your total assets (such as your home), then other debt solutions may be more effective. If you can get all of the benefits of a debt management plan and write off some of what you owe, then that is an avenue that should be looked at by your debt management company. An IVA could very well be that opportunity to write off some of your debts. Many people don’t understand exactly what is an IVA, but very basically it offers the benefits of a debt management plan plus some of the debt is written off. However, it is much less flexible and if you fail to make the payments you may be made bankrupt.
What about Debt Management Companies?
A debt management company, is a third party intermediary that can help you to negotiate debt management plans with your creditors. In truth it’s quite possible to arrange a plan with your creditors yourself, but it is a lot of work and is often much easier to have experts do this for you. This is where the debt management company comes in, as they can explain everything you need to know about debt management.
Debt management companies need to be fully licensed by the relevant authorities. They will need to hold a valid consumer credit licence from the Office of Fair Trading (OFT). They will also need to have a data protection license from the Information Commissioners Office (ICO).
A debt management company will normally have a vast wealth of experience in dealing with debts and arranging debt management plans. They will have seen many different debt situations with their clients and they will be experienced enough to help the client and company work out together what debt solution is going to best for the client. The client’s needs are obviously at the centre of the discussion, and these needs will vary enormously depending on the personal situation.
There are four main debt solutions available to clients, although there are some other ways to deal with debts not always included in these, such as debt settlement making full and final settlement offers, refinancing the debt, or checking the validity or enforceability of the debts. For instance if no payment has been made on a debt for 6 years or more it is likely that the debt is statute barred and the client no longer owes that debt. A good debt management firm will check into these things for their clients. The four main debt solutions are:
- Debt Management
- IVA (Individual voluntary arrangement)
- DRO (debt relief order)
The truth is that few companies are able to offer debt relief orders and bankruptcy. However to be completely compliant all options are considered. If a debt relief order or bankruptcy are likely to be the best option for the client after thoroughly going through the financial situation, then a referral to an organisation that can help is made.
If an IVA or a debt management plan is clearly in the client’s best interest then the work is done to make that happen. With debt management plans every single thing possible should be done to help clients. Clients should never need to call their creditors or speak to them if they don’t wish to. We get phone calls all the time from clients of other debt management companies who have been asked to call around to get some information. We believe that if you are paying a firm to do a job for you, then they should take care of the entire process for you. Ultimately, that is what you are paying for.
What should I do now?
The quickest way out of debt is to take action to deal with it immediately. You can get free advice from one of the charity organisations or if you want to pay for the enhanced service you could consider a paid debt management plan.