Should I ask a company to manage my debt?

8 April 2009

If you can`t keep up with payments to your `non-priority` debts (credit cards, store cards, etc.), what`s the best way forward? Does it make more sense to work through your problems on your own, or to ask a professional debt management company to manage your debts on your behalf? (These aren`t the only options, of course, but this article is just comparing the two.)

Each option has its own drawbacks and its own advantages. Choosing the approach that`s right for you is a decision that will depend on your personality as well as your financial situation.

The `going it alone` approach

Are you confident in your skills as a negotiator? Are you good with calculations? Can you keep track of all your debts without worrying that you`ll forget to make one of your payments? If you can answer `yes` to all these questions, then you might be confident about negotiating with your lenders on your own.

Since you can`t afford to repay your debts at the rate you`d originally agreed to, you`ll need to calculate how much you can afford to pay each lender per month.

Once you`ve figured out how much you have available for your non-priority debts each month (once you`ve accounted for your mortgage/rent, utility bills, food, petrol and other essential expenses), you need to figure out what proportion of this amount you should offer each lender.

Your lenders may agree to accept these lower payments, as long as they can see that:

1. you`re doing your best to maximise the amount you can pay your lenders, and
2. you`re offering each lender a fair portion of the available money.

Note: even though you`re negotiating with your lenders yourself, you`d still probably benefit from some expert debt advice first. A debt adviser should be able to help you draw up a budget, figure out what kind of offer you should make to your lenders, and make sure you`ve not overlooked anything.

The `ask a professional` approach

Rather than tackling their debts on their own, many people prefer to turn to a debt management organisation for help when they can`t keep up with their debt repayments.

There are various reasons for this. First of all, debt management companies have experience of talking to lenders and negotiating repayment plans. Many borrowers, on the other hand, can find the whole process quite daunting, so they`re happy to leave it to professionals who`ve dealt with all this many times in the past.

Second, there`s the complexity of it: keeping track of negotiations, agreements, payments, etc. isn`t easy. Some debt management organisations will handle all the paperwork, letters, phonecalls, etc.

Third, anyone`s circumstances can change over time. A lot of people like the idea of letting professionals handle any further negotiations that are needed if their income or expenditure change and their repayment plan is no longer appropriate.

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