Debt Management

Many people carry massive debts, which are weighing them down, physically, mentally and emotionally. Loan companies have made it easy to borrow money and some of them have significant charges and late fee payments, etc. More recently, companies have latched on to amalgamating debts, so that a person only has 'one debt', but this is not usually any easier to manage than several debts, as the money still has to be found. Be aware of what a consolidation loan is; what it is not, is a magic wand to make your financial worries disappear

Government Intervention

Official bodies have been set up to assist those that are struggling in managing their debts.

In April 2010, the government set up The Money Advice Service with the main aim to:

  • Enhance the understanding and knowledge of members of the public of financial matters (including the UK financial system)
  • Enhance the ability of members of the public to manage their own financial affairs

In April 2012, they undertook additional responsibility for funding and improving the quality, consistency and availability of debt advice with the statutory functions:

  • Assist members of the public with the management of debt
  • Work with other organisations which provide debt services

With a view to improving:

  • The availability to the public of those services
  • The quality of the services provided
  • Consistency in the services available, in the way in which they are provided and in the advice given.

In November 2013, the then Chancellor of the Exchequer, George Osborne, set up a new body, 'Financial Conduct Authority' to look at consumer credit in the UK and specifically review and cap payday loans.

Payday Loans help & advice

If you've exhausted every option available to you and you are turning to a payday loan the first step is to check your lender out thoroughly

Government: The (government) Money Advice Service has an easy to navigate website with basic, step-by-step advice.

Citizens Advice Bureau (CAB): The CAB has been well established for many years and has a government funded face-to-face debt management advice service. Most towns and cities have a CAB office, but if you are in an area that cannot access it, there is online advice.

Independent companies/services: There are also many other companies that offer free advice to people and some genuinely want to rid a person of debt.

Charitable organisations are an example of a service provider that does not wish to benefit from your misery. But, beware of those that offer free advice and then trap you into securing another loan.

As mentioned, it is very easy to be persuaded to take a consolidation loan, that amalgamates all of your current loans into one (supposedly) 'easy to manage' monthly payment. Always take you time to consider if this is really what you want to do. A list of the free debt advice charities can be found here.

Debt management plans

Be aware if you are looking at a debt management plan as a solution a (DMP) can affect you in several ways. As with any debt solution, there are number of benefits and risks you should consider before entering into a DMP.

If you're on a DMP, the payment you make each month will usually be less than the minimum amount you initially agreed to when you took the debt out. A DMP could affect your credit rating, even if your creditors are happy to accept the DMP. However, once each debt is cleared, they will eventually drop off your credit file.

Quite often once you're on a DMP, most creditors will agree to stop interest and charges as a gesture of goodwill. However, some may not, and they're not obligated to stop charging fees.

If a creditor 'refuses' a DMP payment, they still have to let it be processed. However, a DMP provider would usually recommend that you continue to make your DMP payments as normal.

DMPs can be changed to suit your situation if your income or living costs change. You're also not tied into the agreement, so you can leave the DMP agreement at any time, should you want to.

Your creditors can still take further action once you're on a DMP. For example, they can pass your debt to a collection agency or start court action, and they may continue to contact you.

Creditors can also refuse the DMP offer, and add interest or changes to your debt. Because you're taking longer to repay the debt, this may increase the total debt you owe.

Remember

Not all debts can be paid through a DMP. Most debt types can be included, such as:

  • Credit cards
  • Personal loans
  • Overdrafts
  • Gas and electric arrears
  • Catalogues
  • Cancelled phone contracts
  • Payday loans

However, secured debts, like mortgage arrears or secured loans, and some other debts (including student loans, child support, county court judgments and fines) will still have to be paid separately to a DMP.