We asked Christian Seanor, our senior calls advisor, to set out the most commonly asked questions he encounters when speaking to potential clients about possible debt management solutions to their debt worries:
Will this affect my Credit Rating?
Do I need to change my bank account?
I want to go bankrupt instead
I only want a loan
Do the creditors have to accept the arrangement?
Can I do a Debt Management Plan for just some of my debts?
Will the creditors stop contacting me?
Will interest & charges be added at the end of the plan?
Can you include council tax / water rates / utility arrears?
Already in DMP with a fee charging company
You charge fees however we’re considering using a free debt management service
I can afford my debt repayments
Will this affect my Credit Rating?
The likelihood is that your credit rating has already been affected if you are experiencing problems with your debt payments. Credit Rating is influenced by a number of different factors, but if you have missed payments or paid less than the agreed amount, or indeed if you have tried unsuccessfully to obtain a loan to consolidate your debts, these will affect your rating negatively.
Use of a debt solution will affect your Credit Rating if you have maintained your agreed payments so far, but the key issue here to consider is whether you can continue to keep up these payments. The priority first and foremost is to get you free from debt and to make your finances much more manageable. Is it worth putting your credit rating ahead of you and your family’s financial well being?
Do I need to change my bank account?
If you have money owing to your existing bank it is important that you change your account over to a bank where you don’t have any debts. If you don’t, your income will probably be taken by the bank, regardless of whether you can afford this, and of course they would refuse to negotiate with us. However if you change account your income will be protected and we will be in a strong position when negotiating with your creditors.
I want to go bankrupt instead
Bankruptcy could be a good option and if we deem this the best advice in your case then we’d fully recommend discussing this possibility. It could free you from debt and ensure no more creditor correspondence. However it’s worth remembering that any assets could be at risk and you may be requested to make considerable monthly contributions for up to 3 years. It’s possible you could pay less monthly in a Debt Management Plan and avoid the stigma of bankruptcy.
I only want a loan
Maybe this is a viable option; if your credit is strong and you’re in a position to pay the monthly repayments on a loan then this could be a good possibility for you. However if you have a history of missed or late payments then a low interest loan isn’t an option for you. A loan may also mean you’re paying off your debt for even longer and repaying even more interest.
Do the creditors have to accept the arrangement?
No creditor is forced to accept the offer of repayment, or agree to freeze the interest and charges. Creditors need to see that you are treating them fairly, and paying as much as you can towards your debts, and the chances of their acceptance of payment offers and freezing of interest/charges are so much greater in such circumstances. With our knowledge and experience the likelihood is we will be successful in our negotiations; we have excellent working relationships with creditors and collection agents.
Can I do a Debt Management Plan for just some of my debts?
There is no advantage to leaving any creditors out of a debt management plan! We have an obligation to be fair with the client and also all the creditors and it wouldn’t be ethical to request interest and charges to be frozen on one debt and for another creditor to be taking charges – in the interest of fairness we need to treat all creditors equally. From a client’s perspective it’s more advantageous to include all debts so that interest and charges can hopefully be frozen on all of the debts.
Will the creditors stop contacting me?
They will be more inclined to stop contacting you if we are representing your case; we’d make them a realistic offer of repayment and negotiate accordingly. Legally they have the right to contact you; however your personal administrator will contact them immediately and request they deal with us directly. We tend to find that you will find their contact tailing off after the first 3 months in the arrangement.
Will interest & charges be added at the end of the plan?
No charges will be added by us at the end of your repayment plan. Creditors are regulated through the Consumer Credit Act in respect of charges and can only levy charges agreed by you as part of the Consumer Credit Agreement. In practice we do not see creditors attempting to add charges later; after all at the end of the payment plan, your debts have been repaid! Where we feel it appropriate and advantageous to you, we will look to negotiate a lower settlement figure towards the end of the plan in order to get you clear of debt quicker to everyone’s satisfaction.
Can you include council tax / water rates / utility arrears?
Failure to pay Council Tax can be classed as a serious offence, and it is important that this is treated as one of your priority costs. As such we are unable to address Council Tax arrears as part of a Debt management Plan, but will ensure that due allowance is made in your essential living costs when calculating the amount you can afford monthly to pay into the Plan.
We’re unable to negotiate with existing providers; if you continue to receive supply from such Utility providers (such as electricity) they will only deal with you directly and will refuse any third party assistance. However once you have changed to another supplier, any outstanding liability can be included in a Plan, assuming the new supplier agrees to take you as a customer with outstanding arrears.
Already in DMP with a fee charging company
There are other companies that offer a similar service, but there are companies out there that charge high administration fees and costly set up charges. Be clear when entering into a debt management plan about any fees and decide if these are fair in view of the offered service. Is the proposed monthly repayment affordable? Will you have a personal administrator assigned to dealing with everything for you?
You charge fees however we’re considering using a free debt management service
The advantage is that these companies are free to use, however they don’t have the same resources that we have. You would be expected to carry out a lot of administration work yourself, however through us you would have a dedicated case worker who would deal with everything for you. Also the creditors often fund the free companies which mean they have a big say in terms of your monthly repayment.
Citizens Advice Bureaux can be very good sources of advice, though tend to point you in the right direction to deal with everything yourself, leaving you with little support or ‘hand holding’. In addition, they are inundated with enquiries, leading to long waiting times for appointments, by which time it may be too late to take corrective actions.
I can afford my debt repayments
If you can afford your agreed debt repayments, you do not need a Debt Management Plan!
One thought though: It’s one thing being able to afford your debt repayments monthly; however it’s often the case with credit cards that a minimum monthly repayment won’t ever clear the debt. Unless action is taken you can potentially never pay off your debts for a lifetime but a debt management plan should see you debt free within an allocated time scale.
Christian’s responses to these questions are very general, and National Money looks at everyone’s individual circumstances to ensure that the best advice is provided for those circumstances. Please feel free to call Christian to discuss your circumstances on:
08450 505096
Or email Christian Here
