Will debt management stop lenders contacting me?

16 September 2009

A debt management plan can offer people struggling with unmanageable debt a way out. By repaying your debts in smaller instalments over a longer period of time, you can make sure that all your commitments are covered.

Like any debt solution, however, debt management can`t help everyone. You should always speak with a professional debt adviser before deciding on a debt solution.

Here`s an introduction to debt management to help you get started.

How debt management works

A debt management plan is an informal arrangement with your lenders, in which you`ll agree to make lower monthly payments towards your debts, which you`ll repay over a longer period of time than originally agreed.

Lenders may accept this if they can see that it is the most realistic way for them to get back the money they are owed. So if you simply can`t afford your existing debt repayments, but feel you would be able to repay your debts in full over a longer period of time, debt management may be the right debt solution for you.

It`s possible for you to arrange a debt management plan on your own. However, because of the time and effort involved, you may prefer to let a professional debt management company do the hard work on your behalf.

Will I still get letters or calls from my lenders?

Different lenders work in different ways - and different debt management companies offer different levels of service. If, for example, you receive letters from your lenders while you`re on a debt management plan from Gregory Pennington, you can simply forward them to us in one of the pre-paid envelopes we provide, and we`ll deal with them. If they phone you, you can ask them to call us instead.

The Office of Fair Trading (OFT) has issued a report entitled `Debt collection guidance - Final guidance on unfair business practices`, which states that the following (among others) are examples of unfair practice:

• refusing to deal with appointed or authorised third parties, such as Citizens Advice Bureaux, independent advice centres or money advisers
• contacting debtors directly and bypassing their appointed representatives
• operating a policy, without reason, of refusing to negotiate with debt management companies.

A few points about debt management

First of all, debt management is only an option if you can`t keep up with payments to your debts. If you can keep on making the payments in full, lenders will expect you to.

Second, you can damage your credit rating (potentially increasing the difficulty and/or cost of obtaining further credit for the six years it stays on there) if you fail to repay any debt in the way you originally agreed. This is true whether or not you actually join a debt management plan.

And third, repaying any debt more slowly can end up costing more, as it`ll be accruing interest for longer. Of course, if lenders agree to freeze interest, this won`t be an issue.

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Gregory Pennington is a member of DEMSA whose code of conduct is approved by the Office of Fair Trading.