DEBT MANAGEMENT PLAN
WHAT IS A DEBT REPAYMENT PLAN?
If you cannot afford to maintain the minimum monthly repayments to your creditors, then it is often possible to reduce the payments you make to fit within a budget you can afford using an informal payment plan.
Your disposable income (the amount you can afford to pay your unsecured creditors after all of your reasonable living expenditures have been taken into account) is offered to your creditors on a pro-rata basis. For example, let’s say that your disposable income is £300/month. If you owe £20,000 in total of which 50% (£10,000) is owed to Barclays, then Barclays will be offered a monthly payment equalling 50% of your disposable income (i.e. £150/month).
Your creditors will not want to accept reduce monthly payments. However, if you are truly not able to afford more and are able to justify this, an agreement on reduced payments can normally be reached with enough time and negotiation.
The agreement is referred to as “Informal” because it is not legally binding on either party. The agreement is a “Gentlemen’s Agreement” which could be changed by either party at any time.
ADVANTAGES OF DEBT MANAGEMENT PLAN
· Monthly payments are based on the amount that you can comfortably afford.
· Therefore you no longer have to Rob Peter to pay Paul to keep up unrealistic payments.
· If your agreement is managed on your behalf by a third party, all of your monthly payments to creditors can be managed within a single affordable amount.
DISADVANTAGES OF DEBT MANAGEMENT PLAN
· Despite reducing your monthly repayments, your debt still has to be paid back in full. Therefore your repayments period will be significantly increased. If you have large debts, this can mean no light at the end of the tunnel.
· You will have to manage and maintain multiple monthly repayments unless you ask a third party to manage these for you. You could be charged for this.
· Creditors are under no legal obligation to freeze interest or late payment charges. Added interest and/or charges could significantly increase your debt and repayment period.
· You will be credit blacklisted. This will last until all of your debts are repaid in full. You will find it difficult to borrow until all of your debts have been paid.
· Creditors are under no legal obligation to stick to the agreement. They can ask for increased payments or add further interest at any time. This means that you are not protected from any future legal action that your creditors might decide to make, for example County Court Judgement proceedings.
FREQUENTLY ASKED QUESTIONS OF DEBT MANAGEMENT PLAN.
Q:Is this a loan
A: No. At Clear Debt Direct we look for the best solution for you. Our debt management programme is not a loan. If you take out any more loans you will be increasing your debts. We re-arrange your existing debts into smaller payments that you can afford more easily. Although we negotiate to try to reduce or freeze interest rates and charges, you should be aware though that sometimes you may have to pay more interest in the long term.
Q:How does it work?
A: We will assess your income and outgoings and ultimately prove to your creditors that you cannot meet all of your payments. We will then negotiate and agree a single new affordable payment which will be payable to us every month. From this payment we will then distribute an amount to each creditor on a ‘‘pro-rata’’ basis. We will then monitor your situation and advise you accordingly.
Q:Who will look after my account?
A: When you have made your first payment you will be allocated your own ‘Personal Debt Management Consultant’. Your PDMC will be your main point of contact at Clear Debt Direct and will be there to assist you for the life of your debt management programme. Should you have any queries whatsoever you should contact your PDMC direct. Your PDMC will be fully trained in all aspects of debt assistance and will be happy to answer any questions you may have during your programme.
Q: Will you be dealing with every company I owe money to?
A: No. Some of your debts may be regarded as ‘‘priority’’ debts due to serious consequences if payments are not made. An example is your mortgage or utility bills. These will be taken into consideration when calculating what amount is available to distribute to your other lenders and it is very important that you continue to pay these in full yourself.
Q: Will my creditors/lenders definitely accept your proposed programme?
A: Creditors and lenders do not have to accept our proposals, but most are willing to accept them if we can prove it is beneficial and agreeable to both parties. Please note that there is no guarantee that existing or threatened proceedings will be suspended or withdrawn. Your creditors may also continue to issue default notices and add additional costs to your debt. You can rest assured that we will do all we can to ensure your creditors understand the difficulties you are in, to ensure the best possible outcome.
Q: Will I have to pay for longer due to the reduced payments involved?
A: This is possible; however, the payments will be affordable every month. In addition to this, every effort will be made to encourage your creditors to freeze interest and other charges to ensure your debt reduces as quickly as possible. Should your circumstances improve, your programme can be amended to speed things up. Please note that if your creditors refuse to freeze interest, paying the same debt over a longer period of time will increase the total amount to be paid.
Q: What happens if I fail to make a payment?
A: It is highly likely that your creditors would withdraw their support of the programme and may commence court proceedings.
Q: Should I stop all of my direct debits and standing orders now?
A: No, please do not cancel any payment arrangements to your creditors until you receive confirmation that your new programme has been accepted. However if you are aware that there is insufficient funds in your bank account to clear your payments we strongly recommend to cancel all direct debits and standing orders to avoid incurring further bank charges. As soon as you have agreed your programme you should cancel all standing orders/direct debits to creditors on the programme, taking care to ensure that any payments to priority creditors such as mortgage, council tax, water rates, gas, electricity etc, are maintained or re-arranged.
Q: Will I be charged if I change my mind?
A: We will provide you with a 7 day ‘‘cooling off’’ period from the date you accept our Terms of Business and Agreement or if earlier, from the date your first payment is received. If you decide not to continue with the programme within the first 7 days, we will refund your initial fee.
Q: When will my programme be reviewed?
A: We review your programme every twelve months and take into account any changes in your circumstances. If your situation changes in any way, we would ask you to contact us immediately. If your situation worsened we will write to your creditors to negotiate a new affordable repayment programme.
Q: How long will my programme last?
A: Each plan is individual to each customer’s financial circumstances. Due to the fact you are paying less than the original contracted payment to each creditor, the term to repay the debt will be longer but repayments are more affordable.
Q: What do I do if I keep getting letters and phone calls from my creditors?
A: To begin with you may still get letters and phone calls from your creditors. You must not ignore these. This happens because it takes a short time to negotiate with your creditors and they will continue with their standard collection activities until a new repayment amount is agreed. This is normal and nothing to worry about. As soon as we have received your signed Client Authority Form and your first payment, you can tell your creditors to contact us. We will then be happy to deal with all letters and phone calls for you.
Q: How safe is my money?
A: We keep a separate Clients’ Account for all the money that we receive from our clients. The amounts that you agree are then paid out of this account to your creditors.
Q: How quickly do you pay my creditors?
A: If you pay by Standing Order, we will normally pay within 5 working days after we receive the money from you. If you pay in any other way, the money will be paid out similarly when it clears through the banking system. If there are any difficulties, we will contact you straight away to sort out the problem.
Q: How will I know my creditors are being paid?
A: You will continue to get statements from your creditors. As long as you keep up your payments to us, these statements will show repayments from us. You will then be able to see how much we are paying to each of your creditors. You can also ask for a statement from us at any time.
Q: How will this affect my credit rating?
A: Joining a debt management programme will not directly affect your credit rating. However, your creditors may issue default notices to you and inform credit reference agencies that you have not kept to an agreement, but you are dealing with the debts.
Q: Can I pay more or less if I want to change payments from time to time?
A: The programme is flexible. If you want to make an extra payment one month, just call us to discuss how you want to do this. If your circumstances change and you need to increase or lower your payments, just get in touch so that we can talk about what you need to do.
Q: Do I need to change banks?
A: A lot of our clients worry about this. If you stay with a bank where you have credit facilities like an overdraft or loan, they may take steps to collect the money owed to them as soon as your salary or any other payments is paid into your account with them.
Because your programme operates by offering payments to your creditors that are based on how much you owe each one, then if your bank takes their full payment, you will not be able to make reasonable payments to your other creditors. You should think about opening another account with no overdraft attached to it. This will give you more control over your money and will make sure that all your creditors get fair payments. If some of your creditors see that they are not getting a reasonable payment they may not agree to take part in your programme. Our advisers will give you any advice you may need on how to change bank accounts.
Q: What happens if I have any CCJ’s and you have to go to court to reduce the monthly installments?
A: You will have to pay £35 each time we apply for a variation order on your behalf. This is a charge levied by the court none of which is retained by Clear Debt Direct.
Q:What if I am not happy with the service?
A: We aim to provide a professional service at all times. However, if you are unhappy with the service that you’ve received, please write to our Client Services Manager, explaining why you feel that we have not met your expectations. We will contact you straight away to discuss this.
Q:Are you governed by any regulations?
A: We are Licensed by The Office of Fair Trading Under Consumer Credit Act 1974, for Debt Adjusting/ Counselling. Consumer Credit Licence No: 606059
We are Registered with The Information Commissioner’s Office Under Data Protection Act 1998.Registration No: Z1239703
Q:What happens to my information and records?
A: All correspondence to do with your programme (including letters to and from you or your creditors) will be kept by us for as long as your programme is operating. When your programme ends, we will, if you ask, send all this paperwork back to you. You must tell us in writing during your programme or when it ends. If you do not want your paperwork back, we will store it safely for twelve months and we will then destroy it safely.