Debt Consolidation - Debt Management Companies | Consolidation Centres

Published: 11 November 2008

Debt "avoidance" is obviously better than debt "management", but in modern society – where people are more inclined to live for the "here and now" rather than saving for the proverbial "rainy day" – such advice may be as effective as shutting the stable door after the horse has bolted. In fact, British consumers are in debt to the tune of £1 trillion in total on mortgages, credit cards and other consumer credit agreements and no fewer than 1.7 million have problems repaying their debts. A buoyant economy and confidence regarding housing prices, employment and earnings has contributed to the problem in recent years, but in times of economic downturn, many consumers need professional help in dealing with their debts.

Debt Management Company Features, Benefits & Considerations

A debt management company – often abbreviated to "DMC" – can, with certain caveats, be an ideal solution for anyone with unsecured debts over £5,000, who is struggling to repay that debt by conventional means and wants to be free of the day-to-day handling of that debt.

Debt management companies do not normally provide their services free of charge – in fact an initial fee and monthly fees may be payable – but it is usually possible to make just one monthly repayment to the DMC, which agrees a repayment plan with your creditors on your behalf and distributes money to them accordingly. This may not only lower you total monthly repayments but also reduce or freeze, the amount of interest that you are paying on your debts so that they do not continue to spiral out of control. Payments are renegotiated at a level which is realistic, but affordable for a borrower, so that he or she, has a much better chance of repaying a debt in full, and creditors in turn, also have a much better chance of recovering their debts.

A debt management company also contacts creditors directly, so that a borrower is freed from the need to write to, or telephone, creditors and negotiate with them. Placing the management of debt in the hands of a third party, in this way, can therefore allow a certain amount of peace of mind for a borrower, inasmuch as he or she knows that his, or her, debt is being dealt with effectively – indeed, he or she can see a much from the statements sent by the DMC – without being actively involved in the process.

On the downside, upfront fees and monthly fees can be quite high – up to, say, £200 and £30, respectively – so, if you are already experiencing financial hardship, this may leave you with significantly less money with which to actually reduce your debt. It may also be that a DMC requires you to be a homeowner, with some form of income, before it will even consider your application, or you may find that the whole of the first monthly payment is taken as a fee, placing your account in arrears, and potentially adversely affecting your credit rating. Some debt management companies may also only deal with your "non priority" debts – that is, those which remain after you have paid "priority" debts, such as mortgage loans, utility bills, etc., each – month, so you may need to consider whether is actually worth your while engaging such a company at all. If you are receiving benefits of any kind DMCs do not, typically, offer advice on how these may be affected by any debt management plan created. Furthermore, using a DMC does not, necessarily, guarantee that you will become debt free in a short period of time, neither does it, necessarily prevent creditors from taking action against you.

Do bear in mind that, while debt management companies must operate with guidelines set out by the Office of Fair Trading, the debt management sector is not a heavily regulated as some others in the financial industry. This means that it may be subject to misinformation, mis-selling and downright fraud, in some cases so it may be advisable to take "word of mouth" recommendation from a family member, or friend, who has dealt with a debt management company personally; another possibility, of course, is advice from the Citizens' Advice Bureau, or from a qualified insolvency practitioner. In any case, it is advisable to check how much you are required to pay in fees, whether such fees are refundable if you decide not to proceed with a debt management plan, etc.

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