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Debt mananagement companies
A Guide to Debt Management Companies

What do debt management companies do?

Many consumers who are looking for debt help will use debt management companies to help them out. These companies help individuals set up debt management plans with the companies/people to whom they owe money. This kind of debt help can take the pressure off you financially if you are finding it hard to meet all your debt commitments and can keep your creditors off your back.

How do debt management plans work?

If you have some money spare every month from your salary once you have paid for essentials, then this money can be put towards your debt management plan. Debt management companies will talk to your creditors and try to get them to agree to be repaid via your plan in instalments (usually every month). They will perhaps have to agree to take a reduced payment every month, but for most creditors, this is better than your defaulting on your debt completely.

So, here you pay debt management companies a certain sum every month and they split it between your creditors, so that you don't have to deal with them yourself. One big advantage is that many debt management companies will try to get your creditors to freeze (or at least reduce) the interest that you are being charged which could save you some money.

Bear in mind that debt management plans cannot be used to repay so-called priority or essential debts such as arrears you have built up on your mortgage, rent, or on council tax payments. You'll need to sort these debts out yourself.

Do debt management companies charge a fee?

This kind of debt help doesn't generally come free although there are some debt management companies out there that don't charge for their service. For example, the Citizens Advice Bureau, Payplan, and the Consumer Credit Counselling Service (CCCS) can help you draw up your own debt management plan at no cost.

If you use commercial debt management companies, then you may have to pay:

  • A fee upfront to initiate the debt management plan.

  • A monthly administration fee to service your plan and make the payments.

Watch out for debt management companies that will charge you a debt help fee that comprises your total first month's payment as a deposit. This in itself will put you in arrears and this could turn up as a negative on your credit record.

It might be wise to check up on the debt management companies that you have chosen before signing up to any agreement. They should, for example, adhere to Office of Fair Trading (OFT) guidelines in terms of how they market their services and do business. As with any kind of agreement, make sure to read the terms and conditions before you agree to a debt management plan.

For some of us, debt management companies may well be the best solution when it comes to getting debt help for non-essential debts. Debt management companies can take away the stress of having to deal with creditors and can get you the debt help to start making some leeway with clearing your debts without putting undue pressure on your everyday finances. But, before you choose your best option, make sure to take impartial advice to work out whether fee-charging or non fee-charging debt management companies will suit you best.

Compare debt consolidation providers

 
 
 
 
 
 
 
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