Are you grappling with the burden of unsecured debts and feeling overwhelmed? A Debt Management Plan (DMP) might be the lifeline you’re searching for, or maybe even an Individual Voluntary Arrangement. Either way, navigating debt solutions is not an easy task. However, debt management companies play a crucial role in helping you make this decision.
Whether you’re considering the services of a debt management company or exploring free alternatives, our guide aims to equip you with the knowledge and confidence needed to navigate the world of debt management plans effectively. Join us as we unravel the intricacies of DMPs and set you on a path to regain control of your financial life.
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Struggling with Debt? Discover Your Options
Feeling overwhelmed by debt? You’re not alone. Let’s break down your choices into simple, clear steps:
If you’re struggling with debt, you have the option to use either formal or informal debt solutions in order to clear your debts with time. There are various debt solutions available that are suitable for different people based on their unique situations. Some of the most common examples of debt solutions include:
Some debt solutions help to freeze charges and interest until your situation improves, and other debt solutions enable you to clear some or all of your debt.
If you want some advice on which debt solution suits you best, we recommend that you get debt advice by reaching out to either a good debt charity or a debt management company.
Alternatively, feel free to reach out to our MoneyAdvisor team for guidance:
However, based on your situation, there are other debt consolidation services or financial hardship assistance available.
Understanding Debt Management Companies
Debt Management companies are businesses focused on helping you find and organise a debt solution. Think of them like a friend guiding you through a financial maze. They employ experts called insolvency practitioners. They are professionals in creating and managing various debt solutions.
Sometimes, these insolvency practitioners offer their services from other places, too, like financial advisory or accountancy firms. These organisations play a big role in easing your debt worries. But remember, they usually charge for their services. But don’t lose heart. Organisations like StepChange offer free debt advice in the UK.
What a Debt Management Company Can Do for You
Have you ever wondered exactly what a Debt Management Company does? Let’s break it down into easy-to-understand steps:
First, they offer advisory services. They will evaluate your finances and tell you which debt solutions fit your situation best. Next, they help set up your chosen debt solution. This might even involve negotiating with creditors for you.
Some debt management programs that they may offer include:
Take a look at this forum post where users discuss how debt management companies are helpful:
However, one of the most common debt solutions that debtors use includes Debt Management Plans (DMPs). What exactly is a DMP? Read on to find out in the next section.
Debt Management Companies: How Professional Are They?
Debt management companies should act in a professional manner at all times. They are authorised and regulated by the Financial Conduct Authority, and professionals who work in these companies, like Insolvency Practitioners, are regulated by other government bodies.
It’s important to keep in mind that there may be some debt companies that are unregulated. So, it’s crucial that you use debt management companies that are under the authorisation of the FCA.
What is a Debt Management Plan?
A Debt Management Plan is a type of informal debt solution where you come to an agreement with the people to whom you owe money. The agreement consists of making lower monthly payments and then dividing that amount proportionally among your creditors.
Since this is not legally binding, you or your creditors can abandon the agreement without having to face any legal consequences. However, there’s a low chance that creditors will abandon the agreement as long as you stick to the agreed payments every month.
Debt Management Plans (DMPs) help to make paying back debt much more affordable. However, it extends the time taken to pay off the debt. This is also a good option if you want to stop your debt problems from becoming bigger and much more difficult to deal with.
A DMP is also even more helpful if the debt solution companies can negotiate to freeze all interests and charges. Note that this is a common request, but it is not always accepted.
In order to set up a Debt Management Plan (includes negotiating with creditors), debt management companies might charge you a fee. Thereafter, in order to manage the DMP, they may charge a fee every month.
The DMP agreement is made depending on the amount you can afford to pay every month after you pay for your essential expenses, such as bills, rent, and groceries.
The debt management company will then take a portion of your monthly payment in order to pay off service fees. Note that the service fee is included in your monthly payments and is not an additional fee you have to pay. This indicates that not all of your repayment will go towards paying off the debts.
As said before, you have the option of reaching out to a debt charity in order to get a DMP organised free of charge.
However, there is no evidence to state that paying a debt management company will help you get a better deal in comparison to using a debt charity. Similarly, there is no evidence to suggest that using the service of a debt charity will help you secure a better deal.
Normally, DMPs do not appear on your credit report. However, taking up debt solutions such as DMP does have a negative impact on your credit score.
This is because, once you take up a DMP, you make smaller repayments than what you originally agreed with your creditors. Because of this, ‘partial repayments’ are recorded on your file. This reduces your credit score.
However, if you look at this on a positive note, taking up a DMP will help to prevent bigger debts from piling up, which would have greater damage on your credit report.
Steps to Take Before You Use the Services of Debt Management Companies
Before you approach a debt management company, it’s important that you prepare well. If you want to ensure that the debt management process goes smoothly, make sure to take the below steps:
Choosing the Right Debt Management Company: Key Factors to Consider
When you choose a debt management company, there are certain factors that you should look out for.
Some of these factors are as follows:
- That is certified and approved by the FCA.
- They have good online reviews on sites such as Trustpilot instead of their own websites.
- Their website has transparent information, including their contact details.
- They provide multiple different solutions to help you get the best solutions that fit your unique situation.
Furthermore, keep in mind to scroll down to the bottom of their main page. Here, you will be able to see if the company is offering debt solutions themselves or outsourcing to a company with an insolvency practitioner.
There are some sites that appear to be debt management companies. But in reality, they are just lead generation websites that pass on your details to real debt management companies for a fee. Even though there is nothing wrong with this, you will be able to get the same information directly from the debt management company instead of through a middleman.
Where Can I Get Debt Management Services For Free in the UK?
There are various organisations and charities that offer debt services for free in the UK. Some of these include:
- StepChange
- Payplan
- National Debtline
Apart from the above, the below organisations also offer debt advice for free:
- Citizens Advice
- Debt Advice Foundation
- Money Plus Advice
- Money Wellness
- Community Money Advice
Key Points
- Debt Management Companies (DMCs) provide professional services to help individuals organise and manage their debt solutions.
- They offer a range of solutions, including Debt Management Plans (DMPs), Individual Voluntary Arrangements (IVAs), and Debt Relief Orders (DROs).
- DMPs are informal debt solutions that allow for lower monthly payments to creditors, are not legally binding, and can be abandoned anytime.
- Costs for DMC services vary; some offer free initial advice but typically charge setup and ongoing fees.
- When selecting a DMC, ensure they are certified, FCA approved, have positive external reviews, offer a variety of solutions, and have a transparent website.
- It’s important to distinguish between genuine DMCs and lead generation sites that simply pass on details to actual companies.
- Some debt solutions require an insolvency practitioner; DMCs can provide these services, but so can some debt charities.
- Debt charities in the UK offer free services and can be an alternative to commercial DMCs.
- Using a DMP may affect credit scores due to smaller repayments being recorded as ‘partial repayments.’
- Before approaching a DMC, it’s crucial to assess your financial situation, gather relevant documents, prioritise debts, and create a budget.
FAQs
Some companies offer great services for good prices, which makes them a great option for some debtors. However, it’s worth checking if you could get the same service for free from a debt charity. However, some debt management companies provide solutions and services that debt charities do not offer.
If you want to arrange informal debt solutions, you don’t have to use a debt management company. However, when it comes to formal debt solutions, you need to get it arranged by an insolvency practitioner. This means that you cannot handle it by yourself.