What services do debt management companies provide?

17 August2009

A debt management plan is an informal arrangement with an individual`s lenders. It involves negotiating with them, asking them to accept changes to the repayment terms to make sure they reflect the individual`s financial situation today - as it may have changed significantly in the time since they took on the debts in the first place. Lenders may agree to accept lower payments, for example, and/or freeze or reduce the interest they`re charging.

Some people choose to negotiate with their lenders themselves, while others will ask a debt management organisation to help them. There are, however, different kinds of organisations, and they work in different ways. Some will charge their clients a fee, while others will finance their activities in other ways. They`ll also offer different kinds of services.

What kind of service could a debt management company provide?

So, what kind of services might a debt management company offer? It depends on which debt management company you`re dealing with - but here are a few examples...

Helping you with budgeting

Help working through your finances - analysing your income & expenditure and figuring out how much money you have to put towards your unsecured debts on a monthly basis.

Providing advice on negotiating with your lenders

Guidance on talking to your lenders and telling them you can`t keep up with your repayments as they stand today. Guidance on working out payments that are `pro rata` (i.e. based on how much you owe each lender), so you know exactly how much you should offer each lender.

Negotiating with lenders on your behalf

Carrying out negotiations with lenders on your behalf, rather than simply helping you prepare for them.

Handling all paperwork and phonecalls

Taking over all correspondence with your lenders.

Renegotiating with your lenders when necessary

Talking to your lenders if your financial circumstances change further and this means your revised repayment plan is no longer appropriate.

Distributing payments

Distributing money among your lenders - so you make just one payment per month to the company, who`ll pass on the agreed sum to each lender.

Providing advice / answering questions

Helping you with any financial issues you may come up against.

These are just examples. If you want to know more about what a specific debt management organisation can offer, just call them and find out.

A few notes about debt management

  • Whether you work with a debt management company or negotiate with your lenders yourself, making any changes to the way you repay your debts will show up on your credit report, as it means you`re not sticking to the original repayment agreements. This can increase the cost and/or difficulty of obtaining credit for the six years this stays on your report.
  • Lenders won`t agree to accept lower payments unless you can`t keep up with the payments you agreed to make.
  • Lenders are not obliged to accept any changes to your repayment terms. If they do agree to changes, this will probably be for a 6- or 12-month period - after which they may wish to review the terms.
  • Repaying your debts over a longer period of time may increase the overall cost.

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Tags: debt, management, companies, debt management companies, services

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