Debt Management

What is Debt Management?

Debt Management or Debt Consolidation is a service provided by specialists. These specialists will manage your creditors on your behalf meaning you only have a lowered single monthly payment to manage. Its stops harassment from multiple creditors reduces your monthly out-goings and provides the chance for you to recover your personal finances.

Debt Solutions Overview – How do I deal with Debt?

First things first, Moneycloud is going to make your debt problems easier but we do not have magic wands I’m afraid – we have put some information together for you to read and digest, hopefully this educates you as to the options that are available for you to follow if you are experiencing problems with personal debt.

We do understand that living with debt can be extremely stressful and the tendency is to ignore the problem, this is the worst thing you can do. We sympathise with those having to juggle finances, however, with the right debt advice you can find solutions to help you regain your financial stability and peace of mind.

Introduction

Debt can mean different things to different people, just as some people lose sleep over a £25 bank charge; others happily “juggle” credit card, store cards, mortgage payments and other personal loan debt adding up to tens of thousands pounds. However despite different personalities and financial circumstances the following are good indicators that you do have a debt problem:

• Your list of income and expenditure shows that you have more going out than coming in.
• You regularly don't have enough money in your bank account to pay for your rent, mortgage, council tax, utility, or housekeeping costs;
• You can only afford to make minimum payments on your credit card repayments;
• Your total level of debt has increased over the last few years and you can't fully understand or explain where the money has gone;

How do you deal with debt problems?

The experts tell us there are four main options for dealing with debt. But before they are even considered, it is important that you work through two very obvious yet vitally important areas.

1. Can you increase your income?
2. Can you reduce your spending?

Can you increase your income?

If you can bring in extra money then that’s going to provide extra options to cope with your debt.

Always check that the following has been properly considered:

• You are claiming your full entitlement to social security benefits and tax credits;
• You are paying the correct tax code and claiming any tax relief that you are entitled to;
• You can work additional hours or take on a part time job to increase your income;
• You have any unwanted items that you can sell to provide extra money.

Can you reduce your spending?

Again this might seem glaringly obvious and it’s not meant to offend but you must consider the following too:

Can you reduce your spending on your mortgage, insurance, and utility costs. You can use comparison websites to help you find savings.

• Are you sure you have considered all the ways you can save money on regular spending?
• The supermarket you shop in and the food products that you buy?
• The clothes that you buy?
• The car you drive?
• Your mobile phone contract?

Of course there are many things to consider but have you really done this? If not you should do so…

The trick here is to keep a diary for a few weeks in which you write down everything that you spend. Very quickly this will give you a good summary detailing where your money is going. You will be surprised what you see (most people are) and this exercise could suggest where you can make savings.

The 4 Options for dealing with debt

These are your options; if you are offered anything outside these choices then it simply won’t be what is being alluded to:

• Debt consolidation – this means that you are borrowing more money but reducing your monthly payment; you will owe money for longer.
• Debt management plan – by reducing your monthly payments without borrowing more money; 
• Individual voluntary arrangement – a formal legal procedure which offers a write-off of debt after a prescribed period of time, generally, five years;  see our IVA page for further details
• Bankruptcy – a formal legal procedure, which offers a write-off of debt after a prescribed time period of, generally, one year.

Each option has its own set of advantages & disadvantages. And just as important, identifying the best option is as much to do with your personal and/or family situation as with the financial issues. It is important to stress that there is no 'right' way to deal with a debt problem.

Debt consolidation

So how does it work?

Debt consolidation involves borrowing more money to repay your existing debts. You can reduce your monthly payments on the new loan and this will be less than you currently pay on your existing debts; however you must own your own home to be considered for this option. You will obviously pay your new loan for a much longer period, that depends upon your personal level of debt and the deal that you choose with the debt consolidation provider.

The down-side with debt consolidation is that the reduction in monthly payments is not cheap. Paying back your debt through a new loan over a longer period may sound a sensible option but we advise that you understand the figures. While the reduced monthly payment will help your budget in terms of monthly activity, the calculation of how much you will have to pay back in total will be considerably more. You need to be happy with the cost of this service, make sure that you are and understand that this deal has been completed against your property. If you can’t pay this loan you could risk losing your home.

Debt consolidation - Advantages:

• Can reduce the total amount you pay each month on debt repayment. 
• Maintains your credit rating.

Debt consolidation - Disadvantages:

• Normally greatly increases how long it takes to repay your debts.
• Often only advertised to homeowners.

Debt management plan

So how does it work?

OK if you are not trying to avoid payment but are in genuine financial difficulty, then debt management can help you manage your situation with the companies you owe money to. All finance companies, credit card companies and banks that are owed money in arrears by the consumer (you) does have the option to take you to court to get their money back. This takes place in the county court, hence the term CCJ (county court judgment). The benefit to you is that the court is likely to order repayments based on your realistic ability to actually pay.

The court will prioritise your debts and practices the following tiered system towards the people you owe money to:

1st priority debts – these are debts where non payment would lead to the loss of your home (mortgage or rent payments); loss of an essential utility (gas, electricity, telephone, or water payments); loss of an essential item (car needed for work/school run; or where non payment could lead to imprisonment (eg: council tax, magistrates court fine).

Debts needed to maintain you and your family are also considered - so reasonable amounts for housekeeping, travel & other similar items will be taken into account. Then the court will consider what is referred to as 'non priority' credit debts. The amount of money left to repay your bank, credit card and others, will then be considered and the court will make a repayment order based on the figure but also take account of monies owed on other credit agreements. The court will freeze the interest charges with these debts so that the debt interest does not continue to rise. A debt management plan will follow the approach taken by the court. It’s all about the negotiation of reduced debt payments. This involves producing a detailed income/expenditure schedule, showing how much 'spare' money is available after priority payments have been made and proposing a fair distribution of this money. At the same time, a request is also made for further interest charges to be frozen. Arranging a debt management plan is something that you can do yourself, however, the banks and card companies will sometimes respond more positively if a debt advice agency writes on your behalf.

Debt advice agencies

Debt advice agencies offer a similar debt advice service to the Citizens Advice Bureau but will also administer your reduced payments negotiated under a debt management plan. Moneycloud has to advise, paying somebody else to administer your payments means it takes longer to repay your debts. Only pay for a debt management company unless you think their service is worth it. Those that find financial matters confusing, tiresome or lack the mathematical ability to calculate the schedule may find this a practical option.

Debt management plans – Advantages:

• Helps you to balance income and expenditure without having to borrow more. 
• It’s possible to take this option yourself.

Debt management plans – Disadvantages:

• It will take longer to repay your debt. 
• Unfortunately there is no guarantee that your creditors will accept the reduced payments (they don’t have to freeze future interest payments either).
• Your credit rating will be affected as your reference file will show details of the Debt Management Plan.

Why should I consider Debt Management solutions?

The harsh reality is that unless you are absolutely sure you are going to earn more money and reduce your overheads your creditors are not going to disappear. Doing nothing is the worst thing you can do. If you ignore your creditors you can end up in a situation that means you end up losing the option of debt management and move closer to bankruptcy. This is a serious problem that can affect you for years into the future.

In very simple terms if you have spent the money lent to you then you must do something to pay it back.  A professional and reputable debt management specialist can help ease this problem for you. To discuss your particular situation complete the application form as accurately as you can and we’ll be in touch to talk you through the options available to you.

Do I qualify for Debt Management services?

If you cannot meet your loan repayments over £7000 and you have a minimum of 2 creditors (a car loan and a credit card for example) then you are able to complete our application form and talk to one of our expert debt advisors. They can talk you through the options available to you and you are under no obligation whatsoever to have that conversation. If your personal debts exceed £15000 then it might be worth considering an IVA solution, this is dependent upon your ability to pay back the debt of course but for more information please check out our IVA section.

Stop creditors calling you

If you are being constantly harassed by creditors then a debt management programmes can help alleviate this problem for you and your family. Our debt consolidation and management programmes are aimed at people struggling with debt and looking for an easier way to cope with multiple creditors.

A debt management programme takes control of your personal debt and deals with the various creditors in return for a set monthly fee; this should make life less stressful for the debtor within weeks. There are no longer lots of different fees to pay and lots of different creditors to deal with; your finances can be organised much more easily and there is a structured time frame implemented helping you pay off the debt.

Also, good debt management programmes provided by our regulated and approved partners can be advantageous financially, with less interest to pay or more favourable terms.

How is a Debt Management Plan arranged for you? Check out our step by step guide:

1. Firstly a full assessment of your financial situation is carried out and to do this we need to understand your regular income & expenditure. We need to understand who you owe money to; these are known in the finance industry as your creditors. We also need any other relevant information about your personal circumstances.
2. Once this information is provided we create a Financial Statement and we are then able to calculate how much you can realistically afford to offer each of your creditors.
3. We then approach your creditors and we begin a process of negotiation to see if we can get your creditors to accept reduced payments. Creditors tend to be happy to agree the plans we initiate because they understand that our plans are realistic and sustainable.
4. Once we have agreement in place you then make a single monthly payment which is much easier to cope with and we distribute that payment pro rata to your creditors.
5. During this period of debt management assistance, you will have an assigned case officer whom you can contact if you experience any difficulties whilst the arrangement is in place. Your debt management plan will be reviewed at regular intervals to ensure that you are comfortable with the payments and that it meets your circumstances.
6. The debt management plan will continue until your debts are cleared. Sometimes our clients wish to voluntarily end the arrangement with the most common reason for this being an improvement in your circumstances meaning your income has improved. This typically means a client leaves the debt management plan and reverts back to their original monthly payments until concluded.

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