Debt management companies – What you need to know

Debt management companies are organisations that help people deal with their debt problems. They help people in debt way up their options, cut costs, and may advise a debt management plan which allows customers to pay off their debts over time.

Here, we’ll explore debt management companies; what they are, how they work, and how you can choose the right company for your debt management needs.

What is a debt management company?

A debt management company is a private organisation that offers specialised debt management services to help people get back on top of their finances.

These companies primarily help people struggling with debts. They typically offer free debt advice and guidance to people with financial problems, can help you set up a budget and priortitise bills like mortgage payments, and can deal with creditors and lenders on your behalf.

In the most serious cases, debt management companies can place people in formal debt solutions like IVAs, debt management plans, or debt relief orders. These solutions allow people to consolidate their debt and repay what they owe through a series of affordable monthly payments.

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How do debt management companies work?

Most debt management companies follow a similar process when dealing with customers having money issues. The process can be broken down into the following steps.

Step 1: Discovery call

In your initial call, debt management companies will want to find out as much as they can about you and your finances. They may ask you questions about your income and employment status, as well as the amount of debt your in, and the number of creditors you owe money to.

It’s at this point where the adviser will decide whether you can improve your financial situation on your own, maybe by adopting the advice and guidance they share with you, or whether you would benefit from a debt management plan. You should never pay for simple debt advice.

Step 2: Work out a payment plan

If the adviser decides your financial situation is serious enough to warrant a debt repayment programme, the next step is to help you map out a repayment plan. They will take your income and outgoings into account, and work out how much you can afford to pay towards your debts each month.

Step 3: Present your payment plan to creditors

You can’t begin a debt management plan without the consent of your creditors – any person, company, or lender you owe money to. Once they have helped you create an affordable repayment plan, the debt management company will present that plan to your creditors. If enough of them (usually 75%) agree to your proposal, you’ll be able to start paying money towards your debts.

Step 4: Begin repaying your debts

Once your creditors rubber-stamp it, you can start making a monthly payment towards your plan. The debt management company will usually manage the agreement for you, and distribute your money among your creditors. All you have to do is keep up with your payments, and you’ll eventually be debt free.

How long that process takes depends on your arrangement. You can be discharged from debt solutions like sequestration after 12 months, while a Debt Management Plan (DMP) has no fixed payment term – you’ll be in the agreement for as long as it takes for you to settle your debts.

Do debt management companies charge fees?

While there are companies that offer debt management services free of charge, they mostly operate under the banner of debt charities. Most debt management companies charge fees for helping people rebuild their finances, although you should never have to pay money upfront.

A responsible provider will never charge you a lump sum to access debt advice or a debt repayment programme. The most common model is for companies to take an amount from your monthly payments to cover the costs associated with managing your arrangement.

That should only happen after you have been successfully matched with a repayment plan that fits your circumstances, and there should never be a need for you to pay fees just to get some helpful money-saving tips or debt advice.

You could write off up to 81% of your unsecured debt today

What kind of debt solutions do debt management companies offer?

Because there isn’t a one-size-fits-all solution to debt, providers offer a range of different debt management options. Below are some of the most common.

IVA

An Individual Voluntary Arrangement is a debt solution that allows you to combine all your debts into one monthly payment, and gradually repay what you owe while enjoying full legal protection from creditors. IVAs also include a debt write-off – any debt left over at the end of the agreement will be wiped away. IVAs are only available in England, Wales, and NI, but there is a Scottish equivalent.

Trust Deed

Scotland’s answer to an IVA, a Trust Deed operates in a similar way by allowing you to enter a ‘protected’ arrangement with your creditors. You’ll usually make monthly payments for a total of four years (unlike the 5 or 6 in an IVA), after which any remaining debt will be written off.

Debt consolidation

The concept of debt consolidation involves taking several existing debts – like credit cards and payday loans – and turning them into a single monthly payment. You achieve this by taking out a new loan, called a debt consolidation loan, and using that money to repay the rest of your debts. This not only reduces the number of payments you need to manage, but can help you repay at a better rate.

Debt Management Plan

A Debt Management Plan (DMP) is an informal debt solution, which means it’s not legally binding. Under a DMP, your DMP provider act as your representative in negotiations with your creditors, and help you work out a repayment programme based on what you can reasonably afford.

What are the benefits of using a debt management company?

Debt advice

First and foremost, debt management companies understand debt. If you reach out to one, you’ll be put in touch with a professional debt adviser, someone with industry knowledge who can offer you advice on anything from making a budget for yourself and boost your credit score, to the best ways to keep up with payments to your creditors and rebuild your credit file after debt.

Debt repayment plans

When you’re struggling with debt and your bills keep growing, you know you need to get back on top of your finances, but you may not know where to start. That’s where debt management companies come in. They will take the time to learn about you and your financial life, work out the best debt management plan for you, and manage the arrangement so you don’t have to.

Protection from creditors

One of the aspects of debt that brings people the most misery is having creditors call their homes, send them letters, or even show up at their door chasing payments. When you use a debt management company, all that can stop. As soon as you enter a formal debt solution, you’ll receive legal protection from your creditors and lenders, and your DMP provider will communicate with them on your behalf.

What’s the difference between a debt management company and a debt charity?

Debt charities and debt management companies perform similar functions and can often overlap, although there are some key differences in the way they operate.

Debt charity

Debt charities act as a free resource for people in debt. They can offer debt advice and financial guidance, and some can even offer debts solutions like debt management plans free of charge.

A few of the most recognisable debts charities in the UK include the Money Advice Service, Citizens Advice, and StepChange Debt Charity.

While certain debt charities can offer free debt advice and debt management services, there is often a long wait for their services because they cannot cope with the same amount of cases as some of the bigger DMP providers.

Debt management firms

Debt management companies like IVA Plan, Creditfix, or Carrington Dean, also offer certain free options, like debt advice services and budgeting guidance. They will never charge an individual unless they decide to proceed with a formal debt solution.

The main difference between these companies and debt charities is that, when a client enters a formal debt solution like a Debt Management Plan (DMP), a management firm will take a percentage of their monthly payments as a fee.

As private organisations, management firms are subject to strict advertising rules regarding how they present their service to customers. They also tend to be larger than debt charities – IVA Plan, for example, has helped thousands of people put their debt behind them.

Where can I get debt advice and more information about using a debt management company?

If you’re struggling with debt and you’re looking to find a way out, it’s only natural that you’ve come to the IVA Plan website as part of your research.

We’re a leading debt management company in the UK, and our team of debt experts specialise in creating bespoke debt solutions that fit around your lifestyle.

To get free debt advice, guidance, or just some more information on your options, get in touch with an IVA Plan debt advisor for free today.

You could write off up to 81% of your unsecured debt today