Debt management helps the money go further

15 May 2008

When someone can only just manage their monthly debt payments, how do they cope when the cost of living shoots up? According to consultancy Capital Economics, the average household is spending far more on food, bills and other unavoidable expenses than they were just 6 years ago, when these costs accounted for 25% of their income. Today, this figure stands at 31%.

The rising cost of living may be causing everyone hardship, but it’s particularly dangerous to borrowers, many of whom are finding their finances stretched to breaking point or beyond. Someone who could comfortably afford their repayments back in 2002 may well struggle to manage their debts today. In many cases, it’s a struggle they can’t win on their own: more and more are turning to debt management and other debt solutions.

Leave room to manoeuvre
“These figures prove a point we always emphasise: just because you can afford something today, that doesn’t mean you’ll be able to afford it tomorrow,” says a spokesperson for Gregory Pennington. “Managing debt can be like walking a tightrope if your expenses grow to take up every penny of your income.”

And increases in the cost of food and utilities aren’t the only danger here. “Your income could drop. Your mortgage / rent payments could rise. You might need to repair the roof or replace an expensive item like the freezer. Any one of these events could seriously reduce your disposable income. You can’t always predict these problems, but you can protect yourself against them by not taking out credit you can only just afford.”

But what if we need to take out a loan to get through a financial crisis, or buy a car so we can accept a new job? “Life is full of calculated risks. When things don’t work out as planned, our debt management plan can be the ideal way to bring income and expenditure back into line.”

Why debt management?
“When someone asks about joining our debt management plan, we start by discussing their situation and helping them decide which debt solution is right for them – it could be debt management, but it could be a debt consolidation loan / remortgage, an IVA (Individual Voluntary Arrangement) or a Trust Deed. If debt management is the best way forward, we talk to their creditors and find out what they can do to help our client repay the debt at an affordable rate.”

“The vast majority of creditors are understanding and realistic about people’s finances. If they see that someone on our debt management plan genuinely can’t maintain their payments, they’ll be prepared to negotiate: accepting lower monthly payments, waiving charges and/or freezing interest. And they’ll renegotiate if the client’s situation changes again. It’s in everyone’s interests to keep payments at a realistic level, and that level can change all the way through the client’s debt management plan, whenever their disposable income changes.”

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Gregory Pennington are founder members of DEMSA (Debt Managers Standards Association).

DEMSA are the first trade body within the finance industry to successfully secure approval for its code of practice under the OFT Consumer Codes Approval Scheme (CCAS).