Struggling With Debt?
Many people who face serious debts go to Debt Management Companies to get help. There are many advertisements on television for these companies, but how much help are they really?
Usually the Debt Management Companies (DMC) will charge a fee and either negotiate with your creditors for you to try and reduce your debt, or they consolidate your debt payments so you only make one payment direct to the DMC. If you pay the DMC be careful to find out exactly how much of that payment will go to pay off and reduce your debts, and how much goes into the pocket of the DMC. You may believe all your payment is going towards reducing your debts but actually only quite a small proportion of your payment is used for your debt repayment. Check your agreement with the DMC carefully.
If you have involved a DMC this does not guarantee a good outcome as creditors may still take Court action against you. Also creditors are not obliged to accept reduced payments or to freeze interest meaning the debt may continue to grow especially if the DMC is not using enough of your payment to the DMC to satisfy the creditor.
If the DMC you have instructed has not carried out a thorough investigation of your financial position, you may have been asked to commit yourself to an unreasonably high level of payment which you cannot sustain. This will mean you are more likely to default on the figure you are paying the DMC.
Most DMCs will tell you that you should not discuss your debts with each creditor and that they will do this for you. However, if this is the case you must be sure to send to the DMC any correspondence you get from the creditor. Some creditors will refuse to deal with DMCs and if so, you will continue to have to deal with that creditor yourself.
By instructing a DMC you may feel that they have taken a lot of work and worry off your shoulders as they will usually contact your creditors. You may feel more in control of your finances and know exactly how much you need to pay each week or month. On the downside though, you often don’t know how much of your payment is actually being used to pay off your debts. DMCs will often only offer to help people who own their own homes, and have available income. They may seek a deposit at the start of your agreement and charge a high fee. They may charge a monthly administration fee. If your debts are rescheduled by the DMC the creditors might regard your account to be in default. The DMC may use your first month’s payment as a fee, so the account will be in arrears by a month and this will be noted on your credit scoring records.
Most DMCs will not give independent financial advice. If you have difficulties with debt, seek specialist advice first. Free advice from specialist advisors is available at the Citizen’s Advice Bureau. Their staff can assess your problems and if necessary, refer you to their specialist advisors. In the meantime if you tell a creditor that you have an appointment they may agree to take no action until you have seen your advisor.
Simon Speed
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