Many UK residents take advantage of the debt relief provided by a debt management plan. They use this tool to renegotiate repayments for debt, providing themselves with more time to repay the money that they owe. With the help of a debt management plan provider, they get themselves back on track financially in a short time. Consumers who are interested in this approach usually question how much the process will cost.
Within the debt management plan industry, there are three options. A debt charity like the Consumer Credit Counselling Service (commonly called CCCS), the National Debtline, or Citizens Advice provides independent debt management advice and will help establish this plan at no charge. The cost of the plan is subsidized by creditors who want to help consumers handle financial matters. This approach is perfect for consumers who are not sure whether this plan is suitable for them and want free advice regarding their options.
The Choice Is Yours
The second two choices involve using a commercially-provided debt management plan. Some companies charge a fee for this program, while others offer it at no charge. Payplan is one provider that does not charge a fee for establishing and running this plan, as creditors contribute to the costs incurred. A debt management company usually charges a fee to a debtor to set up and manage the plan. Consumers should compare debt management companies to find one that charges the lowest rate for the most comprehensive services.
Approximately 75 percent of consumers who use debt management plans choose a debt management company that charges a fee. The fee structure varies by company but many companies use the same model. This includes a fee charged when the plan is established, which covers the cost of getting it set up. This fee is usually represented by the first two contributions made by the debtor.
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Once the plan is underway, a management fee is charged on a monthly basis. This fee is typically approximately 15 to 18 percent of the monthly payment. Some companies establish a minimum and maximum amount for this monthly fee. Other companies vary drastically from these general cost ranges, charging upfront fees equal to many months of plan contributions and monthly management fees that greatly exceed 18 percent.
The management fee is deducted from payments the debtor makes toward the plan. Therefore, if this fee is high, it will take the individual longer to repay covered debts. A creditor may feel that the fees charged by a particular debt management company are excessive, causing it to reject a plan proposal put forth by the company. The debtor will then need to find another debt management company.
People in debt should explore the three options for debt management plan administration to find out which one is most suitable for their situation. They should be aware of the long-term impact of fees on the length of their plan and keep in mind that service is equally important. Understanding that they need not pay outrageous fees puts debtors in control when looking for a debt management plan.