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Debt management – best friend or worst enemy?

Debt management companies may save you stress but not money

Using a debt management company is like joining a slimming club to help you lose weight – it can work but it’ll cost you. Also, not all of them are entirely honest.

Debt management companies are the new ‘big thing’. They’re all over the country, doing good business out of debtors’ misery. Many (though by no means all) are legitimate but they charge you for something that you could, and should, get for free.

Debt managers can take much of the stress and burden off your shoulders and some people think it’s worth paying just for that. But remember, the more money you pay them, the less you have to pay your creditors so the longer it will take to pay the debt and the more expensive it will be in the end.

Debt management companies that sell products – such as loans and remortgages – on behalf of other obscure lenders, should be avoided at all costs. Handing over your money to anyone instead of creditors really defeats the purpose of working with them.

When should you use a debt management company?

A debt management company should be the last option once you’ve exhausted all other avenues – including friends and family or one of the free debt advisory services.

How to pick the right debt management company

If you’re at wits’ end, make sure you pick a company that’s genuine. There are a number of choices run as charities – some with support from the credit card industry. Click here for a contacts list of free debt agencies.
Put the phone down on any company that says they don’t charge you for their service. They do, it’s just hidden in the payments you are making to your creditors.
Make sure they tell you exactly how much they charge you per month for sorting out your debts.
Get a second opinion before signing for any products or schemes.
Never hand over bank or other details which could give the company or any third party access to your money.
Only go with a company that is registered with the FSA (Financial Services Agency) and has been around for a few years.
Check out Payplan which offers a debt management service.
The Consumer Credit Counselling Service (CCCS) offers free debt management.

In summary, do go with a debt management company if you think you really have to – but make sure it is regulated and remember, it's going to cost you.

Jasmine and the Moneymagpie team
Moneymagpie Moneypedia
21.06.2007