If you have decided to proceed with a debt management program there are a number of decisions to be made to ensure you find the best organisation to manage it for you.
If you are speaking to a company that you are considering to run your debt management program we suggest you ask about the following subjects. You will then be able to compare companies very easily by the quality of the answers and information that you receive.
If you are at all uncomfortable about the answers you receive we suggest that you continue getting in touch with other debt management plan companies. Do not proceed until you feel 100% sure that you have found a firm that you can trust. If something doesn’t seem quite right we advise that you trust your instincts.
- How much are the upfront fees? Most commercial debt management companies charge the first one or two monthly payments that you make as an upfront fee for setting up the debt management program. There are a small number of companies that charge outrageous set-up fees than can run into thousands of pounds by keeping several of the initial monthly payments. Such high fees will lead to a longer period during which creditors are not receiving payment potentially leading to increased collections activity perhaps even including legal action. It will also lead to a longer overall program duration.
- How much are the monthly fees? Commercial debt management companies typically charge in the range of 15%-18% of the monthly contribution as a program management fee once the upfront fee has been collected. If your monthly contribution will be comparatively low check what the minimum monthly fee will be as some companies have high minimum fees. If your monthly contribution to the debt management plan will be comparatively high check whether the debt management company operates a maximum monthly fee which may help to ensure a higher percentage of your money is used to clear debt.
- Is the person you are speaking to actually part of a debt management program company? There are a lot of “lead producers” operating who sell cases on to debt management program companies. The problem is that they are selecting a debt management company for you based upon their commercial interests rather than your best interests. Much better to approach a debt management company that you have reason to trust.
- What training or qualification does your debt advisor have? If you get advice on a mortgage the adviser must be professionally qualified. If you get advice on a regulated financial investment the adviser must be professionally qualified. Unbelievably there is no formal requirement to be qualified to be a debt adviser. There are currently hundreds of inexperienced untrained advisers working within debt management program companies. Advisers now have the opportunity to get professionally qualified in the form of the Certificate in Debt Resolution (CertDR). This is a BTEC Advanced Certificate approved by Edexcel. Any debt adviser that has this qualification has acquired the knowledge and skills required to properly advise you.
- When will my payments be sent to my creditors? Banks and credit card companies like to receive payments as soon as possible; delays may affect the success of your debt management program. The Office of Fair Trading insists that payments should be distributed within five days of the company receiving cleared funds from you. Despite this many debt management companies and charities are known to take considerably longer to issue payments. This risks upsetting your creditors. Ask the company, for example, if they receive payment from you next Monday when will your payments be sent out to your creditors. If it is more than five working days be very cautious.
- Is my debt management program with an organisation that participates in one of the industry trade associations? Companies and organisations that have joined trade associations have committed themselves to additional standards and external inspection of their businesses. This is a strong sign that they are committed to handling your debt management plan correctly. The two main associations are the Debt Resolution Forum (DRF) and DEMSA (Debt Managers Standards Association). Non-membership of one of these associations may be a warning sign about the commitment of that firm to high standards.
- Who will be managing my debt management program? Having a single point of contact will be very useful, especially in the early stages of debt management programmes when the most intense work takes place. Ask also how quickly you can expect a response for an email or telephone enquiry once your debt management plan is up and running.
- Make sure there isn’t a better option. Some companies promote debt management programmes to the exclusion of other debt solutions that might be best for you. Some other companies advise people to enter into a debt management program knowing that within a couple of months they will come back to you suggesting that an IVA might be better for you. This costs you money and time... if an IVA was the best option for you the option should have been presented to you when you first took advice. Has bankruptcy been mentioned at all? It’s generally the last resort for most people but you still should understand the advantages and disadvantages so that you can make your own mind up. Ask the adviser what all of the options are that are open to you. Ask the advisor to list the benefits and drawbacks of each.