What Is Debt Management?

Getting into debt is something all of us have a deep-rooted fear of. Unfortunately for many, the fear is inherently real, and therefore they have to consider debt management.  According to statistics from 2016 by The Money Charity, over £1.562 trillion was owned by people in the UK by the end of October.

Clearly, debt management is on the minds of many people across the country. In case you weren’t completely convinced, here are some further statistics on just how endemic debt is in the UK

  • The age category most over-indebted is those aged between 25-34 according to a study by the Financial Conduct Authority (FCA). It was a considerably large study, with over 13,000 participating in it. Furthermore, 13% of 25-34-year-olds describing themselves as ‘in difficulty’ compared to just 1% of over 65-year-olds who took part in the study
  •  Not including the cost of mortgage lending, it has been revealed that the average person in the UK owes £8,000
  • A staggering 62% of people in the country are worried about the level of debt they are currently in
  • More than 6 million fear that they will never see the day when they are completely debt free
  • When it comes to severe financial difficulty, over 4.1 million people in the UK fall into that category and are considered to be in seriously indebted.
  • According to the same study by the FCA, one in six would face financial trouble if their rent or mortgage repayments increased by less than £50.

As a result, if you are struggling to pay off mortgages, payday loans or credit card payments, you could end up feeling tempted to try and obtain another loan or credit card to pay the existing loans off. However, this is far from a good idea, even if it is well-intentioned.  This is due to the fact that you could end up spiralling into even more debt, as you could end up incurring extra debt by having to pay for late fee repayments, and may have additional interest at a far greater rate than the income that you have.

A better way to try and control your debt if you are feeling concerned is to consider debt management or debt management consolidation loans that can help alleviate your worries about the debt you have. But what exactly is debt management? We tell you everything you need to know about it, so you can decide whether this may be the right option for you or not.

What is Debt Management?

Companies that deal with debt relief and debt management help you to organise your debt and create a plan and agreement that enables you to pay off your debts in a manageable way. However, turning to debt consolidation companies isn’t the best option for everyone. For example, if you only have one or two credit card payments outstanding, then it is unlikely debt management companies are the right choice for you. Debt consolidation companies are for those in these types of situations:

  • You have several outstanding payday loans or credit card debts
  • You have experienced bankruptcy
  • You would like a company to help you deal with creditors
  • You have existing County Court Judgements (CCJs)

The Difference Between Priority and Non-Priority Debts

If it appears that in your case setting up a debt management plan (known as a DMP) you should make it one of your top priorities to know the difference between priority and non-priority debts beforehand. This is because priority debts must be dealt with before setting up a plan, as these types of debts cannot be included in a DMP.

Priority debts include:

  • Rent arrears
  • Council tax arrears
  • Income tax arrears
  • TV licence arrears
  • Maintenance arrears for a child
  • Gas and electricity arrears
  • Mortgage arrears
  • Magistrates’ court fines

What Are Non-Priority Debts?

The types of non-priority debts that can be a part of a DMP agreement can include:

  • Bank loans
  • Water charges
  • Credit cards
  • Store cards
  • Student loans
  • Benefit overpayments

How to Explain Debt Management

Debt management companies will look at your outstanding debts and then create a monthly plan which allows you to organise the debts into a single loan.  This can be a lot less stressful than having to contact each individual creditor, and it can also help you make repayments a lot more manageable. When it comes to necessities such as paying rent or mortgage, entertainment, groceries, clothes this will be apportioned in the debt management plan.

In addition, debt consolidation companies will negotiate a plan for you with creditors in order to come to an agreement of frozen interest. If for any reason you are unable to keep to this plan, it is important to remember that it is an unsecured loan. This means that you will not risk your car or home should you not be able to repay.

It is important to note that debt management companies will take an additional fee due to the part they’ve  played when it comes to sorting out debt repayments.

If You Choose to go With a Debt Management Company

Whilst you could create your own debt consolidation loan by making an excel spreadsheet, or turn to a credit union for a short-term loan, you may decide that it would be preferable to turn to a debt consolidation company.

If you do, it is very important that you check that the debt management company is verified. The way in which you find whether or not the company is safe to use is by checking if they have been approved by the Financial Conduct Authority (FCA). You can very easily check if a debt management company is on the register by going to the FCA website and typing the name of the company. The website also provides advice on unauthorised firms too.

It is also essential that you check the terms and conditions of any debt consolidation loan agreement you are considering making. This is because you could end up with a repayment plan that could end up becoming very difficult to repay.

Daniel is a loans expert based in London and has been working in the payday loans industry since 2010.