Credit Control Solutions

Debt Management Companies: Do you Need help with Debt?

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

 

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“Talk to your creditors”, urges The Debt Advisor

Figures published today by the Council of Mortgage Lenders (CML) show that the number of repossessions in the third quarter of the year was 11,300, up 12% on the previous quarter. CML continue to expect the number of repossessions in 2008 to be around 45,000.

Bev Budsworth, managing director of The Debt Advisor, commented: “We are seeing an increase in people that simply can no longer afford their mortgage payments and are just handing back their keys to solve the problem. I am urging homeowners to talk to their creditors as there are plenty of things that can be done to ease the pressure and keep the roof over your head.”

“The increase in figures doesn’t surprise me. The demand for mortgage products is as high as ever but, with the increasingly-prudent nature of lenders, supply is at an all time low. I believe this trend will continue throughout the inevitable recession. As people’s fixed, sub-prime mortgages come to the end of their term, they could see their monthly payments rise by as much as £300. This squeeze on their disposable income is compounded by high utility prices and the rising threat of redundancy which is forcing some debtors into repossession as their only way out.

“At the first sign of trouble, people should talk to their creditors and open the dialogue as soon as possible. There are things that can be done to relieve the pressure of spiralling costs, including payment holidays and spreading the mortgage arrears over a period of time. People shouldn’t bury their head in the sand as the problem will not simply go away if it’s ignored. Homeowners shouldn’t hand the keys back to the lenders without talking and negotiating with them first – repossession should only be a last resort!”

Bev’s comments come at a time when stronger legal support is being put in place for homeowners facing repossession. The Civil Justice Council has drawn up a protocol encouraging homeowners and lenders to settle problems before it reaches court. The guidelines echo Bev’s advice and urges borrowers and lenders to communicate at an early stage to discuss repayment procedures, avoiding unnecessary litigation and possible repossession.

Bev concludes: “If borrowers are struggling with other outstanding debts in addition to their mortgage, they should seriously consider an Individual Voluntary Arrangement (IVA). An IVA gives you a level of protection on unsecured debts that debt management plans do not. IVAs allow the individual to freeze any unsecured debt, halt any potential legal action from creditors and allow them to repay what they can afford. This, in turn, allows them to budget effectively and pay off their mortgage arrears – hopefully freeing them from the stress of chronic debt.”

Bev Budsworth is an insolvency practitioner with more than 20 years’ experience in dealing with debt issues.

A regular media commentator, Bev has spoken on a wide-range of issues including divorce, self-certificated mortgages, DIY, mature debt and online gambling. She has been regularly quoted in The Guardian, Daily Telegraph, The Observer, Daily and Sunday Express and the Sunday Telegraph as well as women’s magazines including Woman and Red. In recent months she has offered advice on regional television news programmes and BBC local radio phone-ins.

In June 2000, she established The Debt Advisor, one of the first firms to offer comprehensive advice on all debt issues. She had previously spent 17 years with an international firm of chartered accountants where she specialised in personal and business insolvency.

Her experience of dealing with personal debt issues led, in 2005, to her being asked to join a government-led working party to look at ways of simplifying the formal procedures of helping people out of debt.

Since then, she has further shaped the debt industry and led the way in calling for a professional personal debt/insolvency study course to be set up for all people involved in debt advice to individuals.

As a busy mother of three teenage children, she understands the pressures that families face. She believes that with a positive outlook there is always a sensible way to deal with financial difficulties and turn lives around.

Bev recently launched a campaign to bring about a greater understanding of debt and its links to depression giving debtors in the UK access to a two-pronged approach to relieve the misery caused by debt. Teaming up with a psychologist, she is the first in the UK to offer debt advice and personal counselling under one roof. The campaign is geared to help those who are seriously struggling with the wider effects including depression, relationship breakdown, poor work performance and associated health problems.

In May 2008, Bev’s hard work was finally recognised by the industry when she was awarded the prestigious title of national ‘Debt Counsellor of the Year’ by Credit Today. The award, which seeks to recognise top performers in the credit industry, was presented to Bev for her overwhelming achievements in the sector. She won the award despite heavyweight competition and it being her first nomination - she was highly praised by the judges.

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