“Thanks to your help the endless phonecalls have stopped. The atmosphere
in our household is again normal. Thank you”
(Mr D – South-East England)

Debt management plans exist to help people who want to repay their debts but who are not in a position to meet the contractual terms of repayment. Lending organisations understand that due to changes in circumstances many honest people find themselves in financial difficulty. They also understand that people make mistakes. These lenders set up processes to work with people in this situation to find a reasonable outcome for all involved.

Most lenders subscribe to the Lending Standards Board’s Lending Code. This includes comments on how they should assess debt management offers of repayment. Some key parts of the Lending Code state that subscribers:

• “...should be sympathetic and positive when considering a customer’s financial difficulties”.
  
  
• “...should accept the CFS (a record of income and expenditure) as the basis for negotiations with the customer to draw up a debt management plan”.
  
  
• “...should then be prepared to accept an offer of repayment which is based on the principle of equitable distribution of available income..”.

These statements surprise many people who have received endless and sometimes aggressive collections phone calls and letters. The problem for creditors is that unless they are aware of the whole picture (income, expenditure, other debts etc) they simply do not know what they can fairly expect to receive from someone who owes money to them. They do know that there are likely to be other debts and hence the reason for generating so many calls and letters.........if there is only so much money available they want to make sure that a good part of it goes to them before it goes to another creditor.

The arrival of a proper professional presentation of an individual’s financial circumstances together with a fair offer of repayment tends to be met with a rapid reduction in collections activity. Creditors know that none of us can repay money that we do not have. Once they understand that an individual is doing all that they reasonably can to repay what they owe, and that they are treating each creditor fairly in comparison to each other, support tends to be offered.

This support generally includes acceptance of the reduced payment offered and very often the freezing of interest and charges. Other creditors offer reductions in interest (instead of a freeze) to assist with clearing the debt over time. These arrangements are normally put in place for three, six or twelve months at a time. Much of the work handled by a good debt management company is to ensure the continuance of such support when the arrangements come to an end. This work tends to be carried out in the background by the DMP company.

Support may not be immediate. As mentioned previously each lender will have a defined process about how they will react to reduced repayment proposals. For example some lenders will not consider making concessions until an account is three months in arrears. In this situation some additional interest may continue to be applied at the start of a debt management plan but then interest is subsequently frozen.

Certain debt management companies will guarantee to you that all interest and charges will be stopped. Avoid such companies; the promise is false as the decision belongs to the lender rather than them. Good debt management companies understand the current processes used by the major banks and credit card companies. As such they will be able to explain to you the likely reaction of each of your creditors to a debt management plan before you ever decide to go ahead.

“Thanks again for all of your efforts to date. You seem small enough to care and have the time to sort out our creditors with professional advice."
(Mr B – South-West England)

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