Dealing with Debt Problems (Part 6/10)

Until the mid 1990s advice on debt issues was provided only by agencies working within the not-for-profit sector, of which the Citizens Advice Bureau and National Debtline were, and remain, the best known. However, the increased number of consumers with debt problems has encouraged a whole new industry of fee charging debt advice agencies.

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Fee charging debt advice agencies

Debt advice agencies offer a similar debt advice service to the Citizens Advice Bureau but will also administer your reduced payments negotiated under a debt management plan. Your local CAB will often arrange for you to make reduced payments, but you will be responsible for making these payments. The fee charging companies will also arrange that you pay your money over to them and they will pass it on. However, this additional facility comes at a price – the fee charging companies typically keep up to 15% of your regular payment as their fee and the whole of your first month's payment may also be swallowed up in administration costs.

Of course, paying somebody else to administer your payments means it takes longer to repay your debts. There is therefore little point in paying for a debt management company unless you think their service is worth it.

Advantages of debt management plans

• Allows you to bring income and expenditure back into line without taking on more borrowing;
• You can follow this option by yourself or with the help of a no fee charging debt advice agency.

Disadvantages of debt management plans

• There is no guarantee that your creditors will accept the reduced payments and/or freeze future interest payments;
• The time taken to repay your debt will increase. The time will further increase if you pay your debts through a fee-charging debt management company;
• Your credit reference file will show details of the Debt Management Plan. This will affect your ability to get credit in the future.

Debt management plans can be a good option if:

• Your financial problems are caused by a temporary reduction in income and the situation will improve in the near future.

Debt management plans can be unhelpful if:

• Your ability to pay your debts will not improve within 12 months.

Debt management plans can be disastrous if:

• The fees taken by commercial debt management companies and the refusal of banks and credit card companies to freeze interest means that your debt steadily increases.