Debt management
You are not alone!
The UK’s insolvency trade body R3 has recently (June 2010) unveiled figures on 1.6 million debtors now struggling to cope with making their repayments. Research conducted by R3 showed that the number of people with money problems who contacted creditors informally was nearly 600,000, while individuals who have not sought debt advice stood at nearly 1 million which is a 340 per cent increase on the number of people currently pursing official debt solutions like debt management plans and IVAs.
In the UK there are currently between 300,000 and 700,000 people using debt management plans as an official but not legally binding repayment arrangement for their money problems.
The definition of a debt management plan and the benefits of using it as a debt solution are detailed on the left.
Will my creditors accept my payments?
How do I know that my creditors will accept a payment through a Debt Management Plan?
A Debt Management Plan is an informal arrangement between the debtor (you!) and your creditors through which payments to your unsecured debts are made on a regular basis at a level you can afford after taking into consideration all the essential living costs you have to cover each month to keep food on the table and a roof over your head.
The principle benefits of a Debt Management Plan are that all negotiations, correspondence and contact with creditors are handled on your behalf by specialists at National Money, and we ensure that the monthly payments are affordable after reviewing your monthly income and essential living costs. This review is very thorough, and gives a much more realistic picture of your finances than many creditors will have in their files, and that is why many creditors view a Debt Management Plan as a useful way of dealing with their outstanding debt.
Creditors are not legally bound to accept payment offers made through a Debt management Plan, though by law are not allowed to refuse any payments made to them which must be applied to the outstanding debt. However, at National Money we tend to find that creditors will accept our payment offers because of the detail review of your money problems we carry out which leads to realistic and affordable payment proposals.
We are licensed by the Money Advice Trust to operate a review process known as the Common Financial Statement, which takes into account annually updated figures produced by the Office of National Statistics (ONS) for costs incurred by the ‘average’ UK household for the essential living costs, such as food, clothing, utility costs (electricity, gas, phones) etc. Consequently it recognises changes such as increases in VAT, fuel costs etc and moves therefore as inflation etc increase costs. This review process is acknowledged by the British Bankers Association, representing the majority of lenders, as the most reasonable way to calculate fair payment arrangements.
It is important to choose a Debt Management provider, such as National Money, that has a good reputation with creditors for compliance with regulations, Debt Management] a commitment to great customer service, and a record of fair and robust payment offers based upon a realistic, thorough review process. Such Debt Management providers should have a high level of success in gaining creditors acceptances of payment offers.
OK, I’m clear about this, but how much of my payment will go to the creditors?
The basis of a Debt Management Plan is a calculation of what can be afforded each month/week from income after paying for essential living costs, such as mortgage/rent, Council Tax, food, clothing and utility costs (gas, electricity, phones), as well as your travelling costs to and from work. As far as this calculation is concerned, we take no account of the payments you are supposed to make to your unsecured debts, such as personal loans, credit cards, mail order/catalogues etc, as these are not considered ‘essential’ to keep food on your table and the roof over your head; we will tackle these payments with the funds we calculate are available during the above process.
So, let’s say for example that the review of your financial situation suggests you have £200 per month left after dealing with all of your essential living costs. In addition a review of your money problems shows that you have 5 outstanding unsecured debts of £2000 each, totalling £10000. The simple answer to the question will be therefore £200 spread equally across all of the debts – in this case £40 each per month.
Some Debt Management providers, in the charitable sector, will not levy any fees for the handling of the Debt Management Plan, but these providers tend to be funded by the lenders themselves who pay around 10% – 12% of the amount received back to the provider. Is there such a thing as ‘something for nothing’? Unlikely!
Other Debt Management providers will charge a fee each month for a Debt Management Plan, and it is important to research such costs. These fees will be deducted from the amount paid each month into the Plan, based upon the calculation of what the client can reasonably afford after deducting essential living costs from income. The average fees in the industry currently are around 17.5% per month, though there are some Debt Management providers who charge up to 30+% which should be avoided.
Based upon a monthly administration fee of 17.5%, someone who can ‘afford’ to pay £200 per month will see £165 of this amount paid out to their creditors – with fees being the equivalent of just over £1 per day for the service and support provided by a reputable provider.How Will My Creditors Know I Am In A Debt Management Plan?
As soon as you have returned the paperwork to us to confirm that all the details we have are correct, we liaise with the creditors on your behalf throughout the process. Immediately you return your signed Letter of Authority which authorises the creditors to divulge information about your accounts with them, we send a copy to them and advise them of our involvement.
Once the Letter of Authority etc is received by your creditors, they note their files to show that we are acting on your behalf and from thereon they start to deal with us to set up the payment arrangements.
How do I make my payments into a Debt Management Plan?
Payment arrangements are very flexible and essentially we can work with whatever suits your circumstances.
Generally our clients will make their payments into the Debt Management Plan as soon as, or just after, they have been paid each month. This helps to budget for the rest of the month without the worries of juggling various payments when there may not be sufficient funds in the bank account to cover them.
Preferably payments to your Plan will be by standing order set up for an agreed date every month which can be handled without any further fuss or inconvenience to you. However some of our clients prefer to make their payments weekly instead of monthly, again to suit their finances where they are paid weekly, and others will pay us either through using a payment book, or by phone using their debit card.
Update: Shortly we will have the facility to take payments through our website.
Speak to our experts at National Money who will be pleased to review your money problems with you to determine the right solution and give you peace of mind – 08448 247 260
| Debt Management Plan | |
|---|---|
| Will my debts be cleared within a fixed period that is agreed from the start? | NO |
| Will interest be frozen so that my current debts don’t get any bigger? | NO *1 |
| Can I change my payments if I have an unexpected expense? | YES |
| Do I still have to deal with my creditors myself? | NO |
| Will this affect all of my assets? | NO |
| Are my creditors likely to accept less than I owe them? | NO *2 |
| Will I avoid losing the home I own? | YES |
| Am I protected by law from my unsecured* creditors? | NO |
| Will my creditors stop chasing me for payment? | NO *3 |
| Will my creditors consider that I’m trying to do the honourable thing over my debts? | YES |
| Do I keep control of the settlement situation? | YES |
| Is the procedure confidential, preventing others from knowing my situation? | YES |
| Does my partner have to know? | NO |
| Will I avoid social stigma? | YES |
| Is the procedure administered by a licensed Insolvency Practitioner? | NO |
| Can my creditors be legally forced to go along with my chosen course of action? | NO |
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Notes:
*1: Because of the informal nature of the solution, the success of a Debt Management Plan is influenced by the relationship between the debt management provider and the creditors, and the debt management provider’s reputation for proposing fair and reasonable payment offers. A good debt management provider, such as National Money, is likely to gain agreements to cease, or at least significantly reduce, the interest and other fees levied by creditors.
*2: As in Note 1, creditors are likely to accept payment offers at levels lower than set out in the initial Credit Agreement where these are considered to be fair and reasonable in the client’s circumstances.
*3: It is likely that creditors will continue to make contact either by post or telephone during the first couple of months of a Debt Management Plan. However, payment offers made to creditors by reputable debt management providers should ensure that such contact falls away very quickly once the creditors start to receive payments as promised.
Call us for Debt Management help and advice on:
08448 247 260
Or ask us any Debt Management questions using the form below:
