Unfortunately many of the people targeted by these campaigns are highly vulnerable and desperately searching for any way out of their mounting debt worries. The OFT said some callers were told they were among a few chosen individuals who were being contacted as part of a government scheme to tackle consumer debt - of course, it was nothing of the sort. Others were apparently misled into believing the firm was a not-for-profit advisory service, when in fact they were speaking to a commercial debt management firm.
The OFT clearly wants to stamp out the practice of debt firms cold calling people, so if you are on the receiving end of such a call, hang up. However, there is help and support out there from reputable companies.
How to find free impartial advice
One option is to seek advice from one of the debt charities such as Citizens Advice, National Debtline and the Consumer Credit Counselling Service (CCCS). These organisations don't charge for the service they give. However, they are currently facing unprecedented demand as the impact of the credit crunch and recession takes its toll on an increasing number of households. Consequently, you may have to wait weeks, if not months, before an advisor is able to see or speak to you.
Depending on the severity of your financial problems, you may decide to try and resolve things on your own or seek the help of a fee-paying service.
How can you help yourself?
It's essential to know exactly what money you've got coming in and going out every month, so before you do anything else, go through your bank statement and write down all your regular transactions. By doing this you may also be able to identify areas where you're spending unnecessarily and can make savings.
It's also worth looking into whether you can save money by switching any of your products, such as utilities, phone, broadband and insurance. Our comparison tools will help as they make identifying the best deal really simple.
If your debts are comparatively small and you've not yet missed any repayments, you may be able to get your finances back on track by transferring your balances on to one of the cheap credit card offers available or low interest loans. However, bear in mind this won't be an option for everyone - the best deals are only available to those with good credit histories.
Certainly, those with deep debt problems are unlikely to qualify for any new or additional credit even if it is for the purpose of consolidation.
For those with large debts, the first move should be to get in touch with creditors and see if you can renegotiate your repayment terms. If you have held a card or loan with a provider for a while you may have more going for you than you think as most providers will want to keep your custom. So call the customer service number and try to negotiate a lower interest rate, interest holiday or a reduction in your monthly repayments. This is what a debt advisor will do if you seek help from a professional service, but it is possible to do it yourself.
Here are some tips to help you deal with creditors:
Be polite: Show a willingness to work together and don't be confrontational.
Be honest: Explain your situation in full and be aware that creditors may want proof about certain aspects of your story - such as pay slips, doctor's notes for illnesses, etc. The more upfront you are the less likely you are to come unstuck.
Don't be persuaded: Some creditors may offer to extend your credit limit but this is only likely to get you in deeper trouble - so make a lower interest rate your only purpose for the call.
Ask for a freeze on rates: If interest rates continue to be added to your debt, then your debt may never be manageable so ask for a freeze on interest rates.
Be prepared to be rejected: Bear in mind that your efforts might not work. Don't be offended or get hot under the collar - be prepared to give your creditors another call and try again.
What other options are there?
If you don't feel confident about negotiating with creditors yourself, but you need to start tackling your problems now and don't want to wait for an appointment with one of the debt charities, consider a fee-paying service from a company such as Think Money, Debt Advisory Line and Debt Release Direct.
You shouldn't be charged anything for the initial consultation, but based on that the adviser will recommend a solution such as a debt management plan (DMP) or individual voluntary arrangement (IVA).
A DMP is where your repayment terms with creditors are renegotiated to reflect the amount you can afford to pay each month. You will make a single monthly payment to the debt management provider and it will distribute it to your creditors. You will be charged a monthly management fee for this service - usually between 15% and 17.5% of your monthly payments. In addition, most debt management firms will take the first one or two monthly payments to cover the set up and administration costs. Before you sign up with a debt management firm make sure you fully understand what fees you will be charged - it's probably worth speaking to a couple of firms before deciding on which to go with as the costs can vary quite significantly and you don't want to be paying more than you need.
Another solution which may be recommended to you is an IVA. If your debts have spiralled and realistically there is no way you'll be able to repay them, an IVA may be the best course of action. It is basically a formal agreement between you and your creditors and is set up through the county courts. It enables you to repay your debt at an affordable rate over a set period of time - normally five years. At the end of the term, any outstanding debt should be written off. IVAs should not be taken out lightly as your credit rating will be adversely affected.
The cost of an IVA varies significantly and most firms assess them on a case by case basis - the charges should be clearly outlined in the IVA proposal given to you by the provider. Again, as with DMP costs, make sure you fully understand what charges will be levied before you sign up for anything.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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