Use a Debt Management Company to start a DMP
You can use a Debt Management Company to help you start a Debt Management Plan. There are two options. Use a fee charging service or one which is provided for free.
- Do you need help to start a Debt management Plan?
- Should you use a Fee Charging Debt Management Company?
- Is it better to use a Free Debt Management Service?
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Do you need help to start a Debt Management Plan?
There are different ways to start a Debt Management Plan. If you want there is nothing to stop you setting up the agreement yourself. Many people do this. It is often easier than you think.
However to set up a Plan reduced payments need to be negotiated with each creditor. Then the agreed payments need to be maintained on time often to multiple different creditors. If you are not confident about doing this the solution is to use a Debt Management Company.
The company will carry out the negotiation with your creditors on your behalf. You then make a single payment into the Plan each month. The company shares this between your creditors for you. The question is whether you should pay for this service or not.
Using a Debt Management Company allows you to make a single monthly payment into your Plan each month rather than multiple smaller payments. The company distributes the money to creditors on your behalf.
Should you use a Fee Charging Debt Management Company?
A commercial debt management company will charge you a fee to set up and maintain your Plan. But why you should pay for this when you can get the service for free. Are there any advantages if you pay?
Will your Plan be set up faster by a commercial company?
Generally speaking this is not the case. It is true that if you go to your local Citizens Advice for help you might have to wait for an appointment. However there are a number of organisations which provide free debt management plans that you can speak to immediately. A good example is PayPlan.
Will the Plan finish sooner if run by a commercial company?
If part of your payment is being taken as a fee less is available to pay your debts and they will take longer to pay back. As such your Plan should last longer if you use a commercial company. However this is not always the case. Another very important factor regarding the length of your plan is whether interest is frozen. A fee charging company may work harder to ensure this happens.
It is not true to say that creditors automatically freeze interest when you start your Plan. There is no guarantee that they will. If they don’t then hard work must be put in to make sure they do.
Does a commercial company work harder for you?
A commercial organisation needs to make money. To achieve this they must work hard to make sure you are a happy customer. If you are unhappy you can move to a different provider. Given this the company will do everything in its power to ensure that your Plan is working. In particular this means focusing on getting interest charges frozen.
Is it better to use a Free Debt Management Service?
There are different organisations both companies and charities which can start and maintain your Debt Management Plan for free. The fact you are not paying a fee is a clear benefit. But is free always better?
Will you get the same advice if you use a free Debt Management Company?
Whether they charge fees or provide their service for free all debt management organisations are regulated to the same standard by the Financial Conduct Authority (FCA). This means the advice they provide has to be uniform.
Since the 1st April 2014 all Debt Management service providers whether fee charging or free have been regulated by the FCA. If they do not meet the FCA’s standards their permission to provide these services will be withdrawn.
Are free Debt Management Companies funded by the banks?
All free services must be paid for by somebody. Many debt management companies and charities can offer free services because they are funded directly by the banks. A percentage of the money they distribute to each creditor is then paid back to them.
Despite providing the funding the Banks are not directly involved in running free debt management companies. However the fact that they pay for them means they do have an influence over how they operate.
Does a free Debt Management Company work in your best interest?
Free debt management companies have no commercial interest in keeping you happy. As a result they tend to be slower to help when things go wrong. If interest is not being frozen they do not have the same motivation as a commercial company to resolve this situation.
If you get into more trouble with additional debts during your Plan a free provider such as Step Change may cancel the arrangement because you have broken its terms. A fee charging company will always try to help you overcome these issues as they want to retain you as a client.
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