Debt Management Companies: Which is Best for You?

Karen Wilde, 46, from Manchester always lived in fear of phone calls. She also panicked whenever she had a knock at the door. They used to come or call every day, she would say, it was driving me “crazy “and it was during one of those visits by debt collectors that she finally had a meltdown and asked the debt collector to leave.

Karen’s case was somewhat complex as she was responsible for the two people in the house. Her husband, who was about the same age as her and had been registered blind together with her eight-year-old child, Charles. She would dedicate all her time on the two and though they were receiving some benefits, it was hardly to come by, or even fulfill the family’s income.

“We were always ­scrimping and saving for even the basics,” says Margaret.

“We’d get our clothes from catalogues but then we wouldn’t be able to pay the bills.”

The couple turned to a loan company and took an initial amount of £1,000, but top-up loans increased their debt to £6,000.

With other bills added, they owed ­almost £11,000.

“The stress caused us to argue and it was hard ­trying to explain to Jason that he couldn’t have new clothes like his friends,” says Margaret. The couple entered into a Debt Management Plan. The plan, requires debtors to pay an ­ affordable monthly amount, which is distributed among their creditors.

Karen had to look for a debt counselor to organize her Debt Management Plan, and a quick search on the internet quickly revealed a list full of them. She thought that her problems would deteriorate, but two years down line, she hasn’t yet been able to draw up the final agreement.

The thought of her loan interests being frozen and her not receiving any calls from her creditors has remained only but a dream since most creditors have refused to sign up or agree to the councilor’s version of payment. She has soon decided to look into other debt solutions before her debts finally sprawl out of control From Keren’s story, it’s clear that signing up a Debt Management Plan is no easy feat, especially if you are on the minimal payments. One should be thorough and precise on what exactly they want.

What is a Debt Management Company?

A Debt Management Plan (DMP) is an informal agreement between you and your creditors for paying back your non-priority debts. Non-priority debts are things like credit cards, loans and store cards.

You pay back the debt by one set monthly payment, which is divided between your creditors. You need to have at least £5 each month to pay each of your non-priority debts after you have paid your essential outgoings and any priority debts. DMPs can last up to 10 years, depending on your monthly installments.

Immediately you sign up for a DMP, a Debt Management Company will take over your credit on your behalf and will be dealing with your creditors henceforth. Your creditors will usually stop contacting you, during the tenure of the agreement. You should also note that DMPs are not bound by any legal obligations; hence you are not constrained to the payments or period. If your situation changes, then you can cancel any time and re-negotiate the terms.

How do DMP’s work?

Debt Management Companies help you pay off large amounts of debt in an organized and manageable way. They do this the following way:

  • Gathering a list of all your creditors and calculate your outstanding debt.
  • Building a picture of your complete incomings and outgoings per month.
  • They will then take your disposable income and divide it up on a pro rata basis between your creditors.

A Debt Management Plan (DMP) offers a structured method of paying off all unsecured debt, instead of just writing off a portion of the money owed (formal debt solutions like an IVA (Individual Voluntary Arrangement). This type of arrangement runs over a longer period than the originally credit borrowed, with one affordable monthly payment being made based on the debtor’s circumstances to each of their creditors on a pro-rata basis.

Types of Debt Management Companies?

In UK today, there are two kinds of debt management companies, charitable organizations which offer free advice and fee-charging debt management companies.

There are a number of debt companies who advertise online and will arrange a repayment plan for you and your creditors. As long as these organizations are regulated by the OFT and have a consumer credit license, they are legally able to do so.

1. Charitable Organizations

Charitable organizations like National Debt line, the Citizens Advice Bureau (CAB) and the Consumer Credit Counseling Service (CCCS) can offer you the opportunity of having one-on-one sessions with someone who is paid to help you. They may suggest a number of different methods in order to help you to organize your own debt management plan (DMP).

These services shouldn’t be confused with debt companies providing free help. There are many commercial debt management companies who claim to be free but will have other ways of charging you. Remember you could obtain free advice from one debt Management Company but there’s absolutely nothing to stop you shopping around.

The main problem with free debt advice agencies is that they are facing large backlogs as the UK’s debt problems continue to increase, for example, CAB claims it has to deal with around 7000 new debt problems each day, with some people having to wait as much as 3 weeks for help.

2. Commercial Organizations

In sharp contrast, commercial debt management companies will quickly deal with problems and have an added advantage that they offer to administer repayments for you, i.e. payments are made to them and they distribute it (as agreed by you) directly to all your creditors.

A fee will be charged for using this type of service, which is a percentage of your normal payment. But there are debt management companies who are more likely to negotiate better terms with your creditors so the fee they charge may well be worth it.

Why Would You Need a DMP?

A Debt Management Plan (DMP) may be a good option can meet the following requirements:

  • You have no outstanding priority debt or you can afford their monthly installments. Priority debts may include mortgage payments, your rent arrears and council taxes arrears, but you can’t really keep up with your non-priority debts such as your credit card payments and personal loans
  • You are tired of the visits or phone calls by your lenders agency and would like someone to deal with them on your behalf.
  • You are comfortable with making monthly payments.
  • How Much do DMPS Cost?

There is an option to pay a fee for this service with a debt management company or you can seek assistance from the free sector, such as a charitable organization.

  • How to find the right debt management company

There are a number of factors you should consider when deciding on the right debt management company, for example:

  • How fast will you be able to repay your debts?

There are a number of plants which means that you only make the minimum possible contribution, for example one pound every month. Whilst this may seem like an attractive idea, it could mean that you are lumbered with having a lifetime of debt repayments. Think about trying to pay the maximum contribution or creditor that’s affordable for you; the more you pay off, the quicker you’ll become debt free.

  • What fees will you be charged?

Some debt management companies will charge a fixed fee of about 15% of your repayments. Additionally, there can be an admin cost. Remember that you need to read the terms of your plan carefully, and only agree if you are happy with the fees. You could also try to negotiate with the debt company, and never pay for upfront advice.

  • What do you get for your money?

It’s a good idea to know what exactly you’re getting for your money

How to Get a DMP

If your good with the above requirements, and you have no doubts that you can manage, the next step will be choosing a perfect DMP for you, you can do this by:

  • Counter-confirm your priority debts won’t be affected in any
  • Come up with a budget, to establish a monthly repayment that you can commit to for about a year, without missing a single payment
  • Choose a DMP provider. Most of them offer free services, so cost should be a factor
  • Together with the DMP provider, come up with an amicable agreement that easily fits your situation.

Pros of a DMP

  • Most DMPs services are offered free of services. This is really important, for the financially constrained individuals who may be scared of additional costs.
  • Your financially pressure will greatly reduce as you can only pay what you can afford to your creditors, after carefully evaluating your monthly household spending.
  • You can add up your household bills to your DMP, especially if your late with their payments. This shouldn’t affect your monthly payments in any way.
  • You will only be required to make one monthly payment to your DMP provider who will be dealing with your creditors on your behalf 
  • Most DMPs are flexible enough, to allow for reviews in case of any circumstantial changes. This major review is usually considered if you either get a better job or your income reduces or face extra un-expected costs such as medical bills.
  • Debt management is an informal arrangement that avoids the need for formal insolvency procedures such as an IVA, Bankruptcy or an DRO
  • By reaching agreement with your creditors a DMP may suspend actions against you such as county court judgments or an attachment of earnings
  • In many cases, creditors may freeze interest or charges

Cons of DMPS

  • Since the DMP does not provide any legal obligations, your creditors are not required by law to accept it. Since the arrangements are not formal in any way, your creditors can change the terms of the agreement at any time they see fit.
  • Signing up on a DMP, may negatively affect your credit
  • Most DMPs offer low monthly payments, while this may work out for low incomes, due its affordability; it usually results in longer duration of servicing your loans.
  • Your lenders are usually under no obligations to freeze your Interests or associated costs and may reject your proposal to do
  • Your creditors may still take further court action against you, such as a County Court judgment (CCJ)
  • Taking out a debt management plan can certainly affect your ability to obtain credit in future, as there will be a reference to it on your credit file. You should certainly not enter a debt management plan lightly for this reason as well as the other considerations noted above. Check and see whether you can resolve your debt problems with either better budgeting, or by lowering your increasing your income and outgoings.

How To Verify a Debt Company is Registered?

The only ways can verify a company’s legitimate validity is through the FCA registry.

The FCA Register is a public record that shows details of firms, individuals and other bodies that are, or have been, regulated by the Prudential Regulation Authority (PRA) and/or the Financial Conduct Authority (FCA). It also has information on firms regulated by the Financial Services Authority that had cancelled or stopped being regulated before April 2013.

Other information you can see about a firm or individual includes:

  • The main contact details, trading names and other basic information
  • The ‘status’ of a firm or individual, e.g. whether they are authorized or approved

Debt Management Plans Concluded

Before deciding on any debt solution, you should consider all the available options. A Debt Management Plan (DMP) does have its benefits but there are also some disadvantages as well. It all depends on your own circumstances as to which would be the most effective way to sort out your debts.

Debt Management Companies

In light of the FCA authorizations process, the following firms are no longer able to offer debt management plans

Some firms that were providing Debt Management Plans may have sold their client list to another company. If you want to be sure that the firm you are working with is still authorized by the FCA check the Consumer Credit Register.

  • Aaron Cooper
  • Abbey Taylor Limited
  • Aequitas Financial LLP
  • Alexander Barclay
  • Alpha Debt Management Ltd
  • Ashley Park Financial Solutions
  • Assured Money Solutions Limited
  • Barrister Lloyd Debt Solutions Ltd
  • Belmont Financial Management Consultants Limited
  • Best 4 Loans
  • Big t Media Ltd
  • Carefree Group Limited
  • Chatsworth Woodbine Limited
  • Christopher Dillon Inspired Solutions
  • Christopher John Bridgwater
  • Churchwood Financial Limited
  • CL Perry
  • Clear the Debt Limited
  • Collect Services Limited
  • Conclusive Financial Limited
  • Countrywide Debt Collections LTD
  • Credit-Hero Ltd
  • Cross Keys Estates
  • . . …etc.

Debt management plans are not suitable in every situation, but if a DMP is right for you need to confirm and evaluate the above information for you to make the right decision.

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