Which one to use for a debt management plan – a Debt Charity, a Fee Charger or DebtWizard ?

We highlight what we think are the pros and cons of each here

Debt charity v DebtWizard v Fee charger

Free Debt Management Plans (DMPs) - the key points

Because you will not be charged a fee if you go through Debtwizard.com this means that every penny you pay in to the plan will go towards clearing your debts. This could save you thousands in fees and shorten the time you have to repay into the plan when compared with a fee charging firm

* No fees, no charges, no admin costs

* One affordable monthly or weekly payment

* Possible to get the interest and charges frozen

* You will be able to view your DMP online

* Access to free budgeting advice

* Ongoing debt plan support

DebtWizard’s trusted 3rd party provides expert IMPARTIAL advice & debt solutions that are FREE to clients

Q & As

What do debt management companies, DMCs, actually do?

They offer a service whereby they act as a go-between for someone who owes money (often referred to as the debtor) and the lenders (known as creditors) that the debtor owes money to. The debt management company makes contact with the creditors on behalf of the debtor and then draws up a contract between the debtor and his or her creditors. Once the contract is ready the debtor pays the debt management company one monthly payment, they in turn distribute that payment to the creditors.

How do debt management companies get paid?

There are simply two types of debt management companies -

• Firms that will charge you
• Firms that will charge the creditors instead

Debt management companies that will charge you

Basically these firms will charge you every time they distribute a payment to your creditors; this payment is usually around 15% to 18% your monthly payment. For example, you pay £200 per month to the debt management company they will take on average £35.00 for professional fees, therefore your creditors will receive pro rata payments of the remaining £165.00.

There are some firms that will ask for the first three months payment from you in advance BEFORE they actually start work on your behalf. Stay away from these firms as there are numerous other professional firms that will do the same job with just one month fee and will normally start before you have actually paid anything.

Debt management companies that will not charge you - the debt charities and DebtWizard

These types of firms offer exactly the same service as above.

Debt charity - Due to high demand a debt charity can take anywhere a lot longer than a commercial firm to set up a telephone appointment to go through your finances, for some this is just too long which is why they then go to the fee charging firms as with these it is generally dealt with on the same day you make contact.

On the plus side 100% of your monthly payment will go towards your creditors and in return the creditors give the firm a commission or donation. This will reduce the time period of any repayment plan that you have because you are actually paying that little bit more each month. For many consumers this works well. It is all down to individual choice of the consumer based upon the merits of each case.

DebtWizard - We match the debt charities in that you do not pay fees, plus, unlike a debt charity, we can deal with your enquiry straight away! Through our association with our 'trusted 3rd party' we can handle the workload and usually go through your enquiry on the same day of contact or within a few days.

Important note

It does not matter which debt management company you use as it is up to each individual creditor whether they wish to stop applying interest and charges to a debtor's account. Therefore this has no bearing on selecting one debt management company in preference to the other in the hope that creditors will stop the interest being applied.

There are pros and cons for using either of the fee charging or non fee charging debt management company as detailed below.

Pros and Cons of a debt management company

There are three main advantages for using a debt management company;

Advantages (Pros)

• The borrower does not get involved in negotiations with their creditors, this is carried out by the debt management company.
• Only one monthly payment to the debt management company - borrower feels the debt is under control.
• The monthly payment is affordable

Disadvantages (Cons)

• Some debt management companies will charge a set-up fee as well as a monthly administration charge, we don't!
• debts may increase due to the additional fees of a commercial company and creditors' reluctance to freeze interest and associated charges
• Creditors can refuse your offer and not deal directly with the debt management company, not common
• Any rescheduling of debts will most definitely affect the borrower's credit rating
• Creditors are not bound by the arrangement and can take legal action to recover their losses.

An important point to bear in mind is the fact that when using a debt management company, debt charity or DebtWizard it does not guarantee that that the debtor/borower will no longer receive any further communication from a creditor.

Creditors can continue charging interest and further costs to the outstanding sum, although efforts are made to prevent this. So if you are making a low monthly payment in comparison to your level of debt in the debt management program then be aware that the debt can increase and take a lot longer to clear.

Example when not to use a debt management company

• If creditors refuse to freeze interest and stop associated charges whereby the level of debt is increasing then seek further advice.
• If the repayment period is unrealistic due to the high level of debts and an Individual Voluntary Arrangement, IVA, would reduce the term down to 60 months.

Find out more about - What is an IVA? IVA Pros and Cons IVA Information

Example when to use a debt management company

They can be useful when the debts are on the lower side and no other option is available or when a temporary solution is required until someone is able to sort out their finances for example to arrange a full and final settlement such as a consolidation loan or an Individual Voluntary Arrangement, IVA.

Click here to see the Debt Solution Comparison Table on how bankruptcy, individual voluntary arrangements, IVA's and debt management programs compare with each other.

I have decided to use a debt management company what will happen when I contact them?

The debt management company will request the following;

• Your personal details
• Names and addresses with account/reference numbers of your creditors
• Details of any solicitors' debt recovery agents representing creditors
• Details of your income and monthly expenditure such as mortgage, rent, car costs and household expenses
• From this budget sheet the debt management company will be able to establish how much you can afford to pay in to the plan

The debt management company is now ready to write to your creditors and explain your circumstances. The firm will try and do the following;

• Stop any further interest and charges being applied to your accounts
• Reschedule the debts to be paid off over a longer period of time
• Try to prevent the creditors progressing legal activities
• Reduce your overall level of debt

There is no guarantee that the debt management company will be successful in these negotiations. However it is estimated that there are around 750,000 people in the UK currently in debt management programs, for many of these they work very well.

Can DebtWizard help decide if a debt management program is the right option for me?

Yes we can. If a debt management plan is set up for you by our trusted 3rd party, Payplan, then you will not pay fees, they will be paid instead by your creditors/lenders.

To get help and advice on the best way for you to manage your debts then telephone 0800 197 8433 8am - 9pm or complete the rapid response form and we will call you.

Before I contact a debt management company I wish to work out myself how much I feel I can afford to pay into such a plan, how can I do this?

Click on our much acclaimed budget wizard to help you plan your finances, a must for anyone already in debt and for those who wish to avoid any further debt.

Word of caution

Whatever solution you choose be careful not to continue to build up debt through continued use of credit cards, store cards and overdrafts. Otherwise your debt problem will increase and this could jeopardise your current arrangement.

Where can I get details of the 'non-fee charging' firms, the debt charities and Debtwizard?

Here at the DebtWizard list of organisations that help free of charge or call our trusted 3rd party, Payplan on 0800 197 8433 8am - 9pm or complete the rapid response form and we will call you.

Need to ask a question about fre debt management plans? If so then go to our forum