For many people, staying out of debt isn’t easy. Increases in the cost of living don’t always match the income you bring home and if you combine essential living expenses with the temptation of buying nice things (hey, we all feel it – not everyone can be disciplined, right?), it can sometimes be almost too easy to run up debts on credit cards and overdrafts, which can then leave you short when the bills arrive. While there’s always a way out of every situation though, sometimes you just have to realise that nothing but serious help can save the day and that’s where a debt management programme can come in.
Although the idea of negotiating directly with people you owe money to might seem a little scary – because you owe them money, obviously! – it’s the key element of making a debt management programme work. Essentially, you’re out to prove that the amount of debt you have is disproportionate to the amount you earn every month, meaning you can’t realistically pay it off AND cover your basic needs (like rent or food); this then gives you a bargaining chip for convincing them to reduce the amount you pay every month. Originally a process that went through the courts, it’s actually possible with the right advice from the likes of the Citizens Advice Bureau to arrange your own debt management programme and indeed, that’s something that’s becoming more commonplace these days. However, since dealing with creditors directly can often be an intimidating process (especially since some creditors can be rather bullish in their response to a debt management request), it’s actually far easier and more likely to succeed if you go through a debt management company instead.
Working as a mediator between you and your creditors, a debt management company will do all the sums required to work out how much you need to survive every month, tally that against the money you bring in over the period and then calculate the amount available to divide between the people you owe money to. In most cases, it’ll also then divide that money fairly among them (with creditors owed more getting a bigger share of the overall pot) and even handle the payments to them every month, which is something that can definitely be worth the fee they charge. It’s important to ask questions in the initial stages about what services you’re getting for the money though, since not all debt management companies offer the same level of assistance. Make sure you find one that’s going to do pretty much everything on your behalf, as this will relieve you of virtually all the pressure of dealing with debt.
The only key thing here is that a debt management programme is a legally-binding contract between you and your creditors – as such, you need to maintain your end of the bargain and ensure that you make regular payments on time to your debt management company. Failure to do so will result in the contract being broken and your creditors will have every right to come to you for the amount you owe in full, which could land you in serious trouble. It’s also worth noting that your creditors aren’t obliged to agree to a debt management programme and can refuse to accept the terms offered by you or a debt management company. If this happens, then you may need to address their debt directly while still going through with the programme for everyone else – it’s not common for creditors to refuse, but it can happen…
A debt management programme…
- Can help you re-organise your finances and reduce your monthly outgoings
- Can be put together by you individually or with the help of a debt management company
- Requires your creditors to be negotiated with in order to agree lower monthly repayments
- Must be maintained to avoid court action being taken to recover the money you owe
- Might not be agreed to by all of your creditors
- May incur a fee if arranged through a debt management company (although that fee can be worth it if it takes all the pressure out of your hands).
Copyright: Individual Finance, 2010