A debt management plan is there to help those who want to repay their debts but who are not in a position to meet the full contractual terms of repayment. Creditor organisations understand that due to changes in circumstances a lot of honest people find that they are in financial difficulties. They also understand that some people make financial mistakes. These lenders set up processes to assist people in these situations to find sensible and workable outcomes for all parties.
Most lenders subscribe to the Lending Standards Board’s Lending Code. This includes comments on how they should assess debt management offers of repayment. Some key parts of the Lending Code state that subscribers:
- “...should be sympathetic and positive when considering a customer’s financial difficulties”.
- “...should accept the CFS (a record of income and expenditure) as the basis for negotiations with the customer to draw up a debt management plan”.
- “...should then be prepared to accept an offer of repayment which is based on the principle of equitable distribution of available income..”.
Often these statements surprise people who have received endless and often aggressive collections phone calls and letters. The issue for creditors is that unless they are fully aware of the whole picture (income, expenditure, other debts etc) they cannot know what they can fairly expect to be paid by someone who owes money to them. They know that there are often likely to be other debts and therein lays the reason for generating quite so many calls and letters.........if there is only so much money available to go around they want to make sure that a good part of it goes to them before it goes to another lender.
The arrival of a quality professional presentation of an individual’s financial circumstances together with a fair offer of repayment (via a debt management plan) tends to be met with a quick reduction in collections activity. Lenders know that none of us can repay money that we do not have. Once they know that an individual is doing all that they actually can to repay what they owe, and that they are being fair to each creditor in comparison to each other, their support tends to be offered.
It is however important to point out that creditors are not compelled to accept debt management proposals. They are also not compelled to freeze interest and charges or make concessions in this respect. They retain the right to initiate or continue legal action if they wish to.
This support generally includes accepting the reduced payment offered and often the freezing of interest and charges. Other creditors offer reductions in interest (instead of a freeze) to help with clearing the debt over time. These arrangements are normally put in place for three, six or twelve months until they are renegotiated. Much of the work handled by a good Debt Management Plan company is to ensure the continuance of such help when the arrangements end. This work tends to be carried out in the background by the Debt Management Plan company.
Support is not always immediate. As mentioned before each creditor will have a process about how they will react to reduced repayment offers. For example some lenders do not consider making concessions until an account is three months behind. In this situation some additional interest may continue to be applied at the start of the debt management plan but then interest is subsequently frozen or reduced.
Certain debt management plan companies will guarantee to you that all interest and charges will be stopped. Avoid such companies; the promise is completely false as the decision belongs to the lender rather than themselves. Good debt management plan companies understand the current processes used by the major banks and credit card companies. As such they should be able to explain to you the likely reaction of each of your creditors to a debt management plan before you ever decide to go ahead. If you are speaking to a debt management plan advisor ask them specifically about your creditors and how they normally react; the answers that you receive will tell you a lot about how professional that firm is.