Debt Management – The easiest option is not always the best

In today’s climate more and more people are struggling with finance and do not know where to turn. Despite the fact that PiggyBank Loans are a responsible lender and complete the relevant credit and affordability checks even some of our customers are struggling.

Ultimately a borrower is responsible for their own finance and can not place the blame on the lender but we are all human and people make mistakes. Life is not always straight forward and things can change which are beyond our own control.

When these mistakes are made, people do need help and do not know where to turn. That is where the debt management companies step in. With their colourful websites and promises that they can not always keep to, it is just as easy to be drawn in by them as it is the shinny credit cards, the quick pay out of a pay day loan and the easy access to an overdraft.

Debt management companies do a very good job, they take the stress away from the client, they negotiate to freeze interest and charges and deal with the distribution of the monthly payment each month. However the fine print is not always made clear and their promises may be empty.

Once they have completed an income and expenditure, they then work out a how much disposable income is available each month. This is what will be paid to the debt management company. Whilst that seems wonderful as the out goings are no longer a stretch, some times it is not made clear that they may keep the first two payments that are made to them, as well as retaining a monthly management fee of generally around 17.5%. On top of this there may also be a charge on the anniversary of the plan being set up.

What they may also not make clear is during the set up period the debt may be spiraling out of control. If payments are not made to the creditors interest and charges may still be added and the accounts could be defaulted. This may result in legal action being taken against the borrower before the debt management plan has begun.

By the law the creditor does not have to agree to any offer made by the debt management company, they do however have to cash payment and can not prevent the borrower from becoming debt free.

The borrower could take responsibility for their own finance instead of passing it over to a third party. As well as saving money by not paying fees they could work with their creditors directly, which may save them money on interest and charges. Under the Office of Fair Trading guidelines as long as financial hardship can be proven, which could be as simple as providing creditors with a financial statement and a bank statement to back this up, creditors have to work with with them.

By dealing direct with creditors, a plan could be but in place a lot quicker! No charges or set up fees would need to be paid and the borrower could find them self debt free a lot sooner. It may be scary having to admit to creditors that they are struggling but the feeling of freedom when they are not being contacted by their creditors and ultimately the feeling of becoming debt free in a short amount of time would be well worth it.

We all make mistakes but it’s about how you deal with them that really counts.

However if a borrower felt like there is no other option but to enter into debt management they should look into the following non profit debt management companies:

www.stepchange.org
www.payplan.com

They can provide impartial advice as they are there to help and not profit from people who are struggling.