Debt reduction

How much does a Debt Management Plan cost?

The workload to administer a debt management plan is very detailed and involves the following:-

1. Assessing your paperwork and income & expenditure.
2. Making sure you are budgeting correctly for your monthly payment.
3. Preparing a detailed living budget for you in line with creditor guidelines.
4. Contacting all the creditors on your behalf and agreeing a monthly payment.
5. Writing to your creditors and explaining your predicament.
6. Distributing the agreed monthly payment via transfer or cheque.
7. Regular reviews of your case every 3-6 months.
8. Preparing and sending out regular performance updates and statement to you.
9. Proving ongoing help and assistance to you throughout the whole life of the debt management plan.

Debt management plan fees are as follows:

• An Initial Fee equal to 2 months disposable income will be retained from your initial payment(s) to your plan.
• Thereafter a monthly fee equal to 17.625% of your monthly agreed disposable income will be charged, subject to a minimum fee of £35.00.

The aim of a debt management plan

Debt reduction is the aim of a debt management plan. In the UK debt management companies charge a fee. They offer either to consolidate your debt payments so that you make only one payment directly to the debt management company, or to negotiate with your creditors for you.

If you are having to pay fees to a debt management companies, this leaves a lot less money from your available income to pay the creditors. Some debt management companies do not charge a fee to the customer, but are paid commission by the creditors on the assumption that the debt management company will recover some of the debt for them.

Neither advice agencies nor Debt Management Companies can guarantee a favourable outcome for you. Just because a debt management company is involved, this does not prevent creditors taking court action against you.

Also, if a debt management company is involved, creditors are still not obliged to accept reduced payments or to freeze interest and unless they do, the debt will grow.

Rescheduling debts using a debt management plan will usually lead to an increase in the sum to be repaid and the length of the payment period.

Beware of unrealistic levels of payment

Not all debt management companies produce realistic financial statements, because not all debt management companies conduct in-depth interviews with their customers about income and expenditure. You may then be committed to keeping up unrealistic levels of payment. In this case it is more likely that you will default on the payments because they are not affordable. If debt reduction does not occur please inform us.

Some creditors refuse to deal with debt management companies. If a creditor will not deal with a DMC, you will have to deal separately with that creditor. However, debt management companies often inform customers that they should have no further dealings with the creditors, and that if the creditor does contact the customer, the customer should pass any correspondence on to the debt management companies. This may result in creditors taking action - including court action - against you which you do not know about. The end result will not be debt reduction.

Listed below are some of the frequently asked questions on Debt Management Plans

• How do I know whether a Debt Management Plan is right for me?
• What are the advantages of a Debt Management Plan?
• What are the disadvantages of a Debt Management Plan?
• Is a Debt Management Plan a type of loan?
• How long will I have to pay a Debt Management Plan before I am debt free?
• How much does a Debt Management Plan cost?
• How much money will actually go to the companies I owe money to under a Debt Management Plan?
• How do I make the payments?
• If I have a change of circumstance can I stop the Debt Management Plan?
• Who tells the companies I owe money to that I am actually in a Debt Management Plan?
• Will the companies I owe money actually accept a a Debt Management Plan?
• How a will Debt Management Plan affect my credit status with Experian, Equifax and Callcredit, the three main credit reference agencies
• Will a Debt Management Plan stop all the companies that I owe money to constantly telephoning me and sending me letters?
• Will I receive a regular report to inform me that my debts are actually going down?
• After the Debt Management Plan is set will I receive be able to get any additional help and advice?
• After the Debt Management Plan is set up can I still use a credit card or apply for car finance if I budget for it?
• Once the Debt Management Plan has been set up does it mean that I will have to keep paying interest and bank charges?
• Can I include secured loans in a Debt Management Plan, such as car finance or mortgage?
• Can the companies that I owe money to threaten to take my house or flat once that I am in a Debt Management Plan?
• Can I include all my debts in  a Debt Management Plan?
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