Attempting to manage debt alone can be an effective strategy for some consumers. However, by the time debt becomes difficult to manage, many single professionals and families are unable to cope with bills, letters and phone calls from creditors. A qualified debt management service helps consumers to manage debt if they are having difficulty keeping up with basic living expenses and cannot negotiate with creditors to reduce their obligations.
If you choose to work with a professional consulting service to manage your debt, look for a provider that is licensed by the Office of Fair Trading, or OFT. The debt management industry has become extremely competitive, and not all companies that offer to manage debt are licensed, credible agencies. A reliable, trustworthy agency will hold a consumer credit licence from the OFT and will be willing to disclose its policies, terms and fees with you before you enter a programme to manage debt.
Debt Management Services
Whilst many consumers with poor credit have the resources they need to manage debt alone, this approach is not always the most effective way to cope with bills that you can no longer pay. If you are unable to make the minimum payment on your credit card bills, department store bills or medical loans, you may feel too anxious, worried or depressed to enter negotiations with creditors. Many consumers feel bullied by creditors or fear that they will not receive the help they need if they approach lenders on their own to ask for a rate reduction.
Qualified services can help you to manage debt by negotiating with creditors on your behalf. Your income and financial obligations will be reviewed by a credit counselor, who will help you to arrive at a monthly sum that you can manage comfortably. Once you enter a debt management programme, your agency will attempt to work with your creditors to reduce the amount you owe or minimise your interest rate. Rather than paying your creditors directly, you will pay the agency, which will manage your bills by disbursing the funds to your lenders.
For consumers who are earning a steady income and are able to continue making repayments, this solution may be a viable alternative to bankruptcy or an Individual Voluntary Arrangement. However, a programme to manage debt is not the best solution for every consumer. Individuals who are attempting to cope with high medical or legal bills, extended unemployment, prolonged disability or an expensive divorce may find that a settlement agreement, a bankruptcy or an IVA may be a more suitable approach.
Fees and Restrictions
A professional service cannot manage all debts. In general, the bills addressed in a programme are unsecured personal loans, such as credit cards, catalogue bills or personal loans. Taxes, utilities and loans that are secured by your property, such as a mortgage, are not included in the programme. Each month, you will pay a set fee to your agency, which will in turn pay your creditors. In exchange for reducing your obligations and helping you to manage your finances more effectively, you must pay one-time charges and monthly fees to the agency.
Fees and payment policies vary from one company to the next, but in general, consumers who enter a programme must pay an initial fee to the company. This fee covers the cost of consulting with the applicant, drafting a personalised repayment schedule and negotiating with creditors. Each month thereafter, a fee will be charged that covers the cost of disbursing the participants repayments to creditors, preparing monthly statements and counselling the participant on financial planning strategies.
Reliable agencies give consumers the opportunity to leave the programme after a certain period, often two weeks, if they change their minds. If a participant leaves the programme during this grace period, the initial fee may be refunded. After this point, participants may not receive a refund if they elect to leave; however, they are typically not required to pay any additional termination fees. A company may require a certain amount of notice before you choose to terminate an agreement.
A plan to manage debt may be quite effective if a consumer is dedicated to keeping up repayments. The terms of the plan may require that consumers agree not to acquire any new financial obligations, such as new credit accounts or payday loans. Consumers who participate in these programmes may benefit from financial counselling on budget preparation, saving and investing and avoiding impulse spending.
Making the decision to manage debt rather than avoid the problem is the first step in recovering your financial health. Qualified credit counsellors who work for licensed agencies can be valuable allies in your attempt to restore your credit. Before you select a company assist you with your finances, compare rates and services from several of the leading providers in your area.