Debt Management Plan
- See also:
- authorised debt settlement
- comparison matrix
- consolidation loan
- remortgage
- IVA
- bankruptcy
- apply online
- debt counselling
Debt management companies offer a service whereby they act as an intermediary between someone who owes money (debtor) and the multiple people that they owe money to (creditors). They make contact with the creditors and try to renegotiate the debt on behalf of the individual. After that the debtor pays one payment to them monthly which they distribute out between the creditors.
Clear Start works with a number of preferred Debt Management organisations and can set up plans with either no-fees services or professional fee-taking providers.
How it Works
After an individual has been accepted as a new customer the debt management organisation will collect information about the debtor:
- creditors (e.g. lender, type of credit, account number, balance, etc.)
- monthly income (e.g. salary, benefits, etc.)
- monthly expenditure (e.g. rent, bills, car/transport, household, etc.)
From this information, they will agree an affordable payment which the debtor will pay to the debt management organisation on a monthly basis.
At this point they will make contact the creditors to explain the situation and try to reach a settlement on behalf of the debtor. In doing so they will try to negotiate the following items:
- reduction in the overall level of debt
- freeze interest charges
- reschedule the debts to be paid off over a longer period of time
- try to prevent the creditor progressing legal activities
Although they will endeavour to get the best result possible, there is no guarantee that they will be successful in these negotiations.
Professional fee-taking debt management companies will often take the first monthly payment to cover the costs of the processing and negotiation that they have to carry out on the debtors behalf. After this they will take approximately 15% of any further monthly payments. The remaining money each month will be shared out pro rata between the creditors.
No-fees debt management organisations offer a very similar service. The agreed monthly payment will be the same, however they will start paying off the creditors immediately, and all 100% of each monthly payment will get divided amongst the creditors (without a 15% handling fee). These organisations are paid instead by the creditors who give them 15% of whatever has been collected for them.
No-fees debt management organisations have been very popular recently as the number of people in the UK with debt problems has increased significantly. As such some of them are very busy, and some have found it faster to work through a fee-taking company instead.
When it is Suitable
The challenge with debt management plans is that they don't tend to give a final settlement to the debt situation, although there are exceptions to this.
They tend to be useful when some of the other more traditional solutions are not available or when a temporary solution is required until someone is able to sort out their finances and arrange a final settlement such as a consolidation loan or an IVA.
| Pros | Cons |
|---|---|
|
|
What to Look Out for
- Lenders can continue to chase for payments directly, and can even continue to press for legal action or even bankruptcy.
- While the payments may be reduced in the short term, interest can continue to accrue on your accounts, and in order to pay the whole amount off you may end up paying these monthly amounts for many years.
- Interest can continue to accrue against your existing debts.
- If not entered correctly this approach can get you even further into debt.
- Be careful not to continue to build up other types of debt such as credit cards and overdrafts. Some organisations suggest cutting up credit cards until the consolidation loan is paid off.
How to Apply
- Clear Start can set up either no-fees debt management plans or professional fee-taking debt management plans with one of a panel of preferred providers.
- If you are not satisfied with an existing debt management plan contact Clear Start so that an alternative debt settlement solution can be set up.
To talk to an advisor about a debt management plans call 0800 138 5445, or complete the enquiry form.
To contact an advisor call 0800 138 5445. Alternatively complete an online enquiry form and an advisor will call you back at the time that you specify.