Debt Management Plan

UK residents have a strange connection with debts because whilst they can't do with a large amount of debt they also struggle with not having the ability to do the things that available credit offers. The British are likely to rank high as being the most impulsive when it comes to shopping. When times were good and we were enjoying the booming economy, people went on spending and spending. 

Many people will spend until such time that the credit cards are used up and there is no other option but to begin the arduous task of dealing with their debt. One option to helping people dealing with debt is a debt management plan. Debt management is a debt solution were by a company will speak to your creditors on your behalf to stop any interest and charges and agrees an affordable amount to be paid each month/week.

The first priority of debt management is to help borrowers pay their debts. In some instances some companies will advise people that they can pay a certain amount of money and then ask creditors to write off a the remained. This practice is called "debt consolidation" however no one except the creditors can guarantee a fee will be offered or accepted. If you are offered this option from anyone other than your creditor then please be wary how an external company can offer this solution.

Reason Why People Get Into Debt

There are numerous reasons why people find themselves struggling to meet payments to their debt. People in debt are normally paying their creditors what they are due but all of a sudden something happens that prevents them from doing this.

Below is a list and explanation of typical reasons for people having a debt problem: 

•  Redundancy – People are being made redundant at an alarming rate at present due to the financial uncertainty of the current financial climate.

•  Reduced Hours – There is a lot of people having their hours cut so their company does not have to make people redundant.

•  Illness – If someone is ill and off for a period of time then they may only get Statutory Sick Pay (SSP) and this will lead to lower income.

•  Child Birth – If a family have a child then this will be an added allowance on to their expenditure

•  Death – An added expenditure would happen if there was a death in family.

• Unemployment – Again, this is the same as being redundant as it will result in a dramatic reduction in the family income.

• Retiring due to ill-health – This does happen quite often and will have a detrimental effect on household income. For the person involved it will take time to get used to not working and possibly relying on benefits which may mean a change of lifestyle. Failing to adapt to this change of lifestyle could result in a debt problem.

• Overspending – This is when people use credit to have a lavish lifestyle which they cannot afford. Once all credit facilities have been diminished then they need to seek help. This is a rare scenario however people who are not in debt often assume a person's debt problem is due to overspending. This can be the route cause of the stigma of debt.

• Gambling, alcohol and drug misuse – When people initially have access to credit and have an underlying problem, such as gambling, alcohol or drug misuse then this can result in people using credit to satisfy their addiction.

As you can see it only needs one of the above circumstances to trigger people from living within their means to having to seek advice. The current economic climate is pessimistic; redundancies, house repossessions and debt advice is due to sky rocket.

If you have a money problem and need debt advice then always use a debt charity. Debt charities are not for profit which means the directors are not receiving any money made by the charity. This ensures the advice is not driven by how much money people can make.

• When you contact a charity for debt advice there will be a number of options available such as Bankruptcy, IVA (England, Wales & N. Ireland) and the Debt Relief Order (England, Wales & N. Ireland). In Scotland the equivalent to the IVA is called a Protected Trust Deed (PTD). In Scotland there is also the Debt Arrangement Scheme (DAS) which is similar to a Debt Management Plan (DMP) but the DAS provides you with protection if you are a homeowner. In Scotland the legal term for Bankruptcy is called Sequestration. This comes in different variations based on the route to Sequestration. There is Sequestration itself but there is also Low Income Low Asset (LILA) along with the new Certificate of Sequestration which was introduced in November 15 2010.

Dealing With Debt

Debt is a problem affecting millions of people across the UK. Debt has a negative impact on a person’s financial, social and mental well being. Therefore, it’s unlikely anybody would want to be in debt. So, If you don’t want to be in debt, how can you resolve your debt problem?
Our step by step guide, provided by a qualified debt advisor, to resolving a debt problem will give you the tips to take control of your financial situation.


Step 1: Organise your Statement of Affairs (Income & Expenditure)


You can either create your statement of affairs on a computer or on paper. Firstly, record your income (combined if you live with a partner) including wages, child benefit, tax credits etc.
After you have recorded this please total your monthly expenditure, including your mortgage/rent, council tax, gas and electricity etc.
Once you have your total income and total expenditure, please deduct your expenditure from your income. Any money left after deducting your monthly expenditure from your monthly income is known as your disposable income.


Step 2: Your Debts


Now, please make a list of each debt except for anything secured on to your house. Record which company you owe money to, the type of debt (credit card, overdraft etc) and how much you owe.
Afterwards, please total the debt up. You should now calculate the monthly contractual payments you should make to each debt. Please add up your monthly contractual payments separately.
If your monthly contractual payments are more than your disposable income then you may need some professional debt advice from a debt advice charity.
The next step if you feel you need debt advice is not to contact a for profit company but to contact a not for profit charity. A charity will not charge you for their service whereas a for profit company is likely to request a fee. 
If your contractual payments are less than your monthly disposable income, then you are not insolvent, however a debt payment plan may help you. For example, a Debt Management Plan or a Debt Arrangement Scheme may be suitable. Again, a for profit company will charge for these services whilst a charity will offer them free of charge.


Step 3: Making the decision
Once you have spoken to the advice charity and they have given you the solution it is up to you to decide you wish to proceed, if you think it is suitable. A debt charity will be able to help you with the advice, explain the debt solution and ensure you are dealing with a reputable debt solution company.


Step 4: Enjoying the rest of your life
Once you have completed your debt solution, and it may take a number of years, you will then be debt free. The money you were paying towards the solution will then be yours and you will no longer have any debt to credit card companies or banks. The process should help your budget your finances. There are excellent money manager organisers which can help you control your finances in the future and avoid future debt problems.http://www.debtsupporttrust.org.uk.

Debt Advice Charities Explained

http://ukdebthelper.blogspot.com/Many people are told when they are in debt to go and speak to a debt advice charity. People are generally told debt advice charities are the best option because they do not charge the client for advice. For profit debt advice providers typically charge the client for advice in order to gain a revenue stream.

The debt advice charities can be split into three different categories. The difference between these charities is down to who owns them and where the funding is provided. Each has their merits and overall they are generally better than for profit organisations.

The three debt advice charity types include Government funded, Creditor funded & Solution funded.

Government funded

A Government funded debt advice charity is the Citizens Advice Bureau where volunteers and funded advisor's supply advice on debt advice. You can go to your local Citizens Advice Bureau for advice and help on your debts. There are positives and negatives to the Citizens Advice Bureau option.

Positives

- Most independent form of debt advice
- Government funded so the most secure

Negatives

- The waiting time can be 8 weeks and longer to see a specialist
- The advice is typically provided by volunteers and this can mean the quality of advice and knowledge is not always the best in the industry

Creditor funded

The second type of debt advice charity is a creditor funded option. Debt charities such as the CCCS, National Debtline and Payplan are all funded by the creditors. The people who have clients in debt such as the major banks and credit lenders will donate money to the creditor funded charities to allow them to give debt advice. Again, there are positives and negatives to this type of debt charity

Positives

- The advice is typically immediate
- The charity status should mean the charity is not focussed on making a profit

Negatives

- The advice is provided by an organisation funded by your creditors
- There are some people who believe the advice is biased towards the creditors and you could be asked to repay your debt over longer than 20 years.

Solution funded

The solution funded debt advice charity is an organisation such as Debt Support Trust. The charity helps people via the telephone and internet. This type of charity receives their funding from helping the client gather their paperwork and introducing the client to a company to provide the solution.

Positives

- The advice is typically immediate
- The charity status should mean the charity is not focussed on making a profit

Negatives

- The money to continue to help other people comes from a small percentage of solutions
- Whilst this type of charity does not look to make a profit they do need enough income from helping clients to continue to help other people. The payment this type of charity receives does not come directly from the person in debts pocket.

What is the best type of debt charity?
 
Each debt advice charity has its benefit and negative. Do you want to wait for debt advice, would you want to speak to a charity funded by the people who gave you the debt or would you prefer to speak to a charity who receives a payment for introducing you to a debt solution company.

The alternatives option is to speak to a company who will charge you for advice and may place you in the wrong debt solution (debt management plan for over 40 years for instance).

The safest route for people in debt is the debt charities. What debt charity you decide to chose is your decision but our advice would be to speak to several debt organisations to see which one is most caring. You can also speak to a number of debt charities in order to see what debt solutions they recommend and make a decision which one you wish to follow.