Debt Management Companies: Are they Right for you?

In the current economic climate, more and more people are finding themselves in debt and are turning to Debt Management Companies to help them out.

 

Typically, Debt Management Companies will ask you to complete an application from along with a questionnaire. Depending on your responses, they will suggest a Debt Management Plan that is suitable for you. The very good DMC's will have an "on-line" questionnaire which, once completed and dependant upon your answers will come up with a suggested solution to your problem there and then. More than likely an agent of the comnpany will then telephone you to talk things through with you.

 

In many cases the Debt Management Company (DMP) negotiates a reduction in payments with your creditors, this may include freezing interest on any of your borrowing. The benefits to you are:

 

·   Your monthly payments are reduced

 

·   If interest has been frozen, any payments you make actually reduce your debt by that amount (none of it goes towards interest)

 

·   Your creditors will not appoint debt collectors or take any recovery action against you whilst you maintain your payments

 

If your creditor does not agree to freeze interest, repaying your debt over a longer period of time might increase the overall amount you have to repay (due to interest).

Creditors are not obliged to agree to any changes in the contractual agreement, although many of them do and will. They will normally only accept reduced payments for a certain period of time, before reviewing the situation with either yourself or your DMC.

 

The important thing to remember here is, so long as you keep your creditors advised of any problems in making payments to them, they will as a general rule of thumb normally support and assist you.

 

By entering a debt management plan, you are effectively defaulting on your original agreement with your creditor. This will be noted on your credit file for a period of 6 years after the debt has been repaid. This will make it very difficult for you to obtain further credit and any credit that you do obtain will normally be more expensive due to the increased risk involved.

 

Any decent Debt Management Company will advise you of all of the options available to you. It may well be that a more formal solution will be applicable in your case, such as:

 

·   An Individual Voluntary Arrangement

·   Bankruptcy

 

How could you enter a debt management plan?

It is possible for you to negotiate a reduction in payments with your creditors yourself. However the amount of work involved will normally be quite considerable and your creditors are trained in dealing with approaches of this nature. Therefore, in my view it is far better to instruct a Debt Management Company

 

Jamieo "Making Your Cash Flow"