Sometimes debt can get out of hand and when it does, one of the best ways to deal with it is to take out a debt management plan. However you need to be smart when you consider this option. So what do you need to know about debt management plans?
A debt management plan is where you can’t pay your debtors and so you go to an independent service, which renegotiates payments on your behalf. They make an offer to the lender based on your circumstances and if they accept it, then you only have to pay that set amount.
It can be bad for your credit score, as you would expect, but it’s a small price to pay. Debts that you can’t handle are a nightmare for your personal finances. This action means that you can slot repayments into your budget and get some actual peace of mind, along with the time you need to get the situation under control.
However the FCA has come out this month telling people to be careful with debt management plans. This is because the country’s financial regulator has found that some don’t really offer that great value for money, and they could actually be putting you into more debt.
That is because some of these companies are offering plans that can cost consumers up to £620 a year, as these firms are perfectly within their rights to charge for their services. FCA director of policy, risk and research, Christopher Woolard, came out saying that “debt management firms must start putting consumers first,” and that “It’s frankly unacceptable that these people who are struggling to make ends meet are being talked into unsuitable plans.”
Woolard really does have a point here, and the moral of the story, as it should be in all areas of personal finance, is that you should always do your research. If you really do need to take out a debt management plan, go to a free service such as Citizens Advice or National Debtline, which are great sources of information on the subject at hand.
From there you need to make sure that you do several things if you want to dig yourself out of debt. You need to draw up a budget and stick to it, find fresh avenues of income and build up the amount needed to make sure that you can pay the debt off in full.
A Debt Management plan really is a great tool to use if you have no choice. However you’ve got to remember to do your research so that you arrive at a plan that will help dig you out of debt, not drive you further into it.
LINK TO INFO: http://www.bbc.co.uk/news/business-26692111
Kiran Trivedi 