AdviceCentre™ Article

Choosing the right debt management company to help with your debts (by Debbie Brown from YesDebtFree)

The National Consumer council reports that every 4th person amongst us is fighting the debt menace. In the UK there are many debt solutions: formal or informal. It is important to be aware and smart enough to choose the right option for yourself.

Debt has become a pending issue in UK. People are struggling to pay their bills for meeting household as well as credit requirements. Whether home repossessions or lender’s court action, everything has risen over the recent years. In response, debt management companies are sprawling up like wild mushrooms. Every second you will find a new debt management website. You will find flashy adverts for numerous debt management firms promising to reduce your debts by half or remove your credit record from your file. Just beware that these claims are false because the only way to get debt free is to pay them off as soon as you can.

So how can you do that? Debts can be paid off with numerous debt solutions. There are formal and informal routes out of debt in the UK. Formal routes are IVA, Administration Order and even Bankruptcy. People in Scotland can also go for a Trust Deed to fight debts. However, if you are looking for a solution outside the court, debt management can be the best solution. A debt management plan is an informal procedure and all your debts would be cleared unlike the formal procedures. For example in an IVA or Individual Voluntary Agreement only 75% of your debts are paid off

If we trace back time, you will find that these debt management plans were set up by county courts. This was done after a finance company or any lender appealed to reclaim their money. However if the court finds that the borrower is facing a severe financial crisis, it will only allow repayments according to their ability to pay off. This includes sorting of priority debts such as house repayments and utility bills. But what if your debts keep on increasing? Certainly people then resort to the debt management companies for a quick and easy debt solution. It works similarly like court arrangements. The only difference is that nothing is legal and the borrowers take the initiative to ward off their debt problems.

But the challenge lies in choosing the best debt management company in UK. This step will complete half your task of erasing debts. A good debt management company will essentially deal with your creditors and arrange for an affordable monthly payment scheme to pay off your arrears. This would also freeze all the interest being charged on your debts.

When it comes to debt management companies in UK, there are two categories: charitable services that offer free debt solutions and debt management companies that charge a fee to deal with your debt issues. If you want advice and assistance for getting the right debt management plan in UK, get in touch with Citizens Advice Bureau (CAB), National Debtline and the Consumer Credit Counselling Service (CCCS).

When selecting the right debt management company, you should consider these factors:

1. Opt for a company that will pay off your debts quickly. Often these debt management companies make very small contributions that could stretch your debts for a lifetime. So always pay off the maximum amount. The more you pay off the faster you will get debt free.

2. Check the charges that these debt management companies levy on you. Generally you will be charged 15% of your payments. Often there are a lot of administration costs involved in these plans that will only add up to your monthly payments. So be careful not to pay anything ‘up front’ for advice that they give you. You should pay them only when a plan has been agreed upon.

3. If you are heading for a debt management company that will charge you a fee for its services, check that you will get the service you deserve. There can be several queries in this regard: eg. Will the company deal with your creditors? Will the accounts manager answer all your questions? Will you get full support from the company during the entire plan? And so on.

4. Last but not the least you must ensure that the debt management company is licensed by the Office of Fair Trading (OFT) and abides by OFT guidelines.

Recently the Office of Fair Trading (OFT) has taken strict action against 13 debt management companies in UK. Their services have been ceased because they were deceiving consumers by using website addresses similar to that of the non-profit organisations. It has been reported that a total of 27 websites have been turned down by OFT.

There is one more thing that should be brought to notice of the debtors in UK. Remember that your credit report can never be erased. It is retained in your credit file for 6 years. No company or firm can remove this from your credit file. So never get carried away by debt management companies that claim to remove bad credit history.

by Debbie Brown from YesDebtFree.co.uk

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Posted by Plebble Admin at 12:26 on 12-Nov-2009