The average unsecured debts of people across the country has risen sharply in the last 5 years with the average UK person owing £9,240 (>$15,000).  If you take those averages and focus them onto people with additional unsecured loans, it rises sharply to £21,480 (almost $35,000).  What alarms me is that neither of the above statements take into account those UK citizens with mortgage commitments.

Around 330 people are reported to be going bankrupt every single day and I wonder if before taking that unenviable leap into receivership they looked at the opportunities offered by debt management plans.  Perhaps because the subject is quite a taboo, it doesn’t get widely spoken about in the circles of those who in actual fact have quite a large part in creating their necessity. I suppose it doesn’t make for good shareholder or consumer reading.

"Sign up to a highly competitive loan, we know you’re over committed, but have no fear once we have given up on getting the money back off you, we will pass your debt onto a much more reputable organization, who after offering you structured words of advice, will in turn insure you understand the benefits of keeping that other outgoing, your private medical insurance, bang up to date!"  It doesn’t have a very appealing ring to it!

Thankfully, some years ago the government stepped into the process and I believe with the assistance of the FSA, Debt Management Plans became widely accepted within the finance industry. The purpose of debt management is largely to stop individuals from going bankrupt, as once that final and dramatic step has been ruled on within court, all creditors must form an orderly queue and none are likely to see a fraction of the money back compared to if they had offered some form of Debt Management Plan first.

When you enter into a Debt Management Plan, generally 3 very positive things happen;

1. The interest on your debt is frozen
2. You can pass any demand letters onto a third party to be dealt with
3. No debt collectors will call

 

In itself this can be very welcomed news. It is quite well known that people’s reaction to rising debt can quite often be negative. Debtors often choose to completely ignore debt agency letters, which can often be perceived as threatening and stressful.

The problem that people fail to understand is that the debt problem doesn’t go away, it just gets bigger. By taking those first steps to find a solution to your debt issues, you will have gone further than you can imagine just by freezing the compound interest on the debt, which otherwise will just keep rising at alarming speed.

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1) Care One

2) Credit.com

3) CuraDebt

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Debt Management Plans take into account your needs and reasonable standard of living. Your debt manager will go through budgets with you in order to see what is reasonably expectable from you. In the UK they will often be looking for an amount of around £100 per month in order to satisfy creditors that a return will be made, albeit over quite some time and often a fraction of what is outstanding.

One should bear in mind when considering Debt Management Plans that this £100 is not cast in stone, it is perhaps a benchmark figure but can often be much less or perhaps higher depending on your individual circumstances. This figure also takes into account your debt commitments and becomes a one off payment to creditors, therefore will quite often save you money on a monthly basis.

It is not the end of life, in fact it just paves the way for new beginnings. Don’t fear what can often be a desirable solution due to the stigma it brings, there is more stigma involved in not addressing your debts at all.