When you find yourself in debt it’s very easy to make the wrong decision. Pressure from creditors means that you’re often anxious to find a solution quickly, but if you act in haste you may end up making the wrong choice and could even find yourself in a worse position. To help you avoid the pitfalls, we’ve prepared this list of common myths about managing your debt.
Myth 1: Help and advice costs money
You’re probably aware that there are many companies who offer debt solutions. They advertise on TV and radio, on the internet and they may even call you at home. These companies offer a number of different ways to help you deal with your debt, everything from bankruptcy to setting up a debt management plan.
The downside is that there are fees involved and these will eat into your available finances. And if you can’t afford the fees they won’t be able to get help at all.
But did you know that there are organisations that can provide you with solution for free? Some options may involve fees, such as the costs of applying for a DRO (Debt Relief Order), but a not-for-profit organisation such as Stepchange or Payplan will not add its own fees. This means that if, for example, you set up a debt management plan all your available income goes towards reducing your debt, meaning that you become debt free quicker.
You can even set up your own plan. There are plenty of sources of free advice that can help you do this.
Myth 2: All advice is the same
Many debt management companies advertise that they offer free advice but, while it may be free, can you really be sure that it is the right advice? Think about what the company does. If a company which specialises in IVAs (Individual Voluntary Arrangements) advises you that this is the right solution for you, can you really be sure that they’re not just interested in generating business for themselves?
At the very least you should get a second opinion from someone like the Citizens Advice Bureau who can provide independent and impartial advice based on your individual circumstances.
Myth 3: The quicker the better
“Speak to an adviser now!” scream the adverts - and yes, the chances are that if you were to phone a commercial debt management company right now, you’d be able to speak to an ‘adviser’ straightaway. When you’ve got creditors breathing down your neck, that’s a very attractive proposition.
Or it would be if you could be sure that you’re getting the right advice. Commercial companies can afford to employ plenty of staff to help sell their services. They won’t necessarily assess your situation properly – just enough to establish that you can pay for the service. Neither are they guaranteed to fully explore all your options.
Charities don’t employ salespeople to answer your queries, so you may have to wait a little longer to speak to someone. But when you do get to talk to an adviser, you can be confident that they will fully explore your situation and offer options that are right for you.
Don’t be panicked into making rash decisions: the first port in a storm might not be your best option. And if you’re worried about continuing pressure from your creditors, let them know that you’ve contacted a reputable organisation for help. Most creditors will give you the breathing space you need to come up with a sustainable plan.
Myth 4: You get what you pay for
You may come across commercial debt management companies who will tell you that paying for help with debts means that you will get a better service. People who work in the not-for-profit sector will tell you that this is no guarantee at all. They frequently see people who have been let down by commercial companies who haven’t passed on payments to creditors, neglected to keep their customers informed or failed to live up to their promises.
Using a free provider doesn’t mean you have to settle for a substandard service. Far from it. Charities employ trained advisers and money advice specialists who have many years of experience. Their activities are governed by bodies such as the Financial Conduct Authority and the Charity Commission and their work is rigorously checked. What’s more, because there are no fees involved, more of your money can go towards your creditors and this means that they are more likely to agree to a payment plan.
Myth 5: A commercial firm can make your problems disappear
Want your creditors to freeze your interest, reduce your debt or even ‘cancel’ it completely? Want to be debt-free by the end of the year? These are the kinds of things that a commercial company might promise in order to get your business, but check the fine print and you will find that there are no guarantees.
- Only a creditor has it within their power to write off your debt.
- There’s no guarantee that all your creditors will agree to a debt management plan.
- When it comes to insolvency solutions there are different qualifying conditions and there may be some debts that you are not able to include.
A charity such as Citizens Advice won’t mislead you with rash promises. For instance, in many cases a creditor will agree to freeze interest but it’s not a guarantee. You don’t want to find that out a year later when your debt has already spiralled out of control.
What you need is someone who is going to explore the pros and cons of all your options, keep you informed and help you to make an informed decision.
And that decision has to be the right one for you, rather than something that looks good on the balance sheet of a commercial debt management company.