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Ultimate Guide to Debt Management Companies (2023)

Navigating debt solutions can be overwhelming, but understanding the options at your disposal - from Debt Management Plans to Individual Voluntary Arrangements - can alleviate financial pressure and pave the way towards solvency. Dive in to demystify your options.

If you’re worried about debts and need help choosing the best debt management company, you’re at the right place. Each month, over 170,000 people visit our website to learn about debt solutions.

In this article, we’ll help you understand:

  •  What a debt management company is
  •  What options you have if you can’t pay your debts
  •  How to choose the best debt management company
  •  If it’s possible to write off some of your debt
  •  Where to find free debt management services in the UK

We know how hard it can be to face debt problems.; some of our team have been in debt too. That’s why we’re here to help you understand how to manage your debts and find the best help in the UK.

I can’t pay my debts. What options do I have?

You can use informal or formal debt solutions to clear your debts affordably over time. There are several debt solutions available which are designed to help people in different situations. 

Examples of debt solutions include Debt Management Plans (DMPs), Debt Relief Orders (DROs) and Individual Voluntary Arrangements (IVAs). Some debt solutions can freeze interest and charges or get some or all of the debt written off. 

To work out which debt solution is best for your personal circumstances, you can first get debt advice by speaking with:

  1. A good debt charity
  2. One of the best debt management company

Depending on your situation, other debt consolidation services or financial hardship assistance may be available. You can find more information on our debt info page

Don’t worry, here’s what to do!

There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt, but the wrong one may be expensive and drawn out. 

Fill out the 5 step form to find out more.

Could you legally write off some debt? Answer below to get started.

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How much debt do you have?

This isn’t a full fact find, MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.

What is a debt management company?

A debt management company is a commercial business that offers services to help debtors choose and organise a debt solution. The purpose of using a debt management company is to get out of debt in a way that’s affordable to you, but it might take time. 

These debt solution companies work with an in-house professional who is certified to create and monitor various debt solutions. The name of this person is an insolvency practitioner. Sometimes an insolvency practitioner can offer these services from other businesses, such as financial advisory or accountancy businesses. 

Debt management organisations can help greatly with managing debt stress. However, costs and fees do usually apply. It is important to note that non-profit debt management organisations, such as StepChange, provide free debt advice in the UK.

What does a debt management company do?

Debt management companies begin by offering advisory services to help the debtor work out which debt solutions they’re applicable to and which one is most suitable for them. They may also advise on effective debt-reduction strategies.

They then help the debtor set up the debt solution, potentially by negotiating with creditors on their behalf. The company will then oversee the debt solution until it’s completed and you’re free from debt. 

Some debt management programs commonly offered by debt management firms are:

  1. Debt Management Plans
  2. Individual Voluntary Arrangements
  3. Debt Relief Orders
  4. Bankruptcy
  5. Scottish debt solutions comparable to the ones above

One of the most common debt solutions people use via a debt management company is a Debt Management Plan (DMP). 

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What is a Debt Management Plan?

A Debt Management Plan (DMP) is an informal debt solution for unsecured debts whereby you agree with creditors to make lower monthly payments, which then get divided proportionally between all creditors. 

It’s not legally binding, so you or your creditors can abandon the agreement at any time without reason. But if you set up a DMP and stick to the agreed monthly payments, it’s unlikely that creditors will change course. 

The DMP is used to make debt repayment affordable but extend the length of time it takes to repay. It’s also a method of stopping debt problems from getting bigger and becoming harder to deal with. 

A DMP is even more worthwhile if the debt management company can negotiate to freeze all interest and charges, which is a common request but not always accepted. 

Do you have to pay for a Debt Management Plan?

Debt management firms may charge a fee to set up your Debt Management Plan, which involves negotiating with creditors based on your personal finances. They may then charge a fee each month to manage the DMP.

However, you can get a Debt Management Plan set up for free with no or little ongoing costs from a UK debt charity. 

How much do you pay on a Debt Management Plan?

The DMP monthly payment is proposed to creditors based on how much you can afford to repay after you pay for essential expenses, such as rent, bills and groceries.

The debt management company may then take a percentage of your monthly payment to cover service fees. The service fee is paid out from your monthly payments rather than an additional fee you have to pay. 

This means not all of your repayment is going towards your debt. 

Do you get better service if you pay a fee?

As mentioned, you can often get a Debt Management Plan organised by a debt charity for free. 

This begs the question – do you get a better service or result if you pay a debt management company to set up and manage your Debt Management Plan?

There is no evidence to suggest that paying a debt management company negotiates you a better deal than if you were to use a debt charity. On the other hand, there is also no evidence to suggest a debt charity will secure you a better deal if you use them. 

Do Debt Management Plans hurt your credit score?

Although the Debt Management Plan itself doesn’t always appear on your credit report, using this type of debt solution will negatively affect your credit score. 

This is because a DMP causes you to make smaller repayments than initially agreed with creditors. Therefore, “partial repayments” are recorded on your file, which reduces your credit rating

But if you consider the situation from a wider lens, a DMP could prevent you from bigger debts and a credit file that would otherwise suffer greater damage. 

Steps to take before approaching a debt management company

It’s important that you are appropriately prepared before approaching a debt management company. Taking the following steps will ensure that the debt management process is as seamless as possible:

  1. Assess your financial situation: Before approaching a debt management company, it is necessary that you understand the full extent of your financial situation. You should calculate your income, debt, and interest rates associated with your debts.
  2. Gather your important debt-related documents: When discussing your debt with a debt management company, it is useful to have as much official documentation to hand as possible. E.g., recent statements, and details of loans.
  3. Prioritise your debts: It is important to distinguish your debts into two categories: non-priority debts (e.g., credit cards) and priority debts (e.g., tax debt). This will ensure that you receive the necessary advice and solution for your situation.
  4. Create a budget: Some debt advice services will help you do this. However, it is useful to have an idea of what your expenses are (e.g., bills, rent, groceries). This way, you’ll be as informed as possible during your consultation.
  5. Research debt management companies: Not all debt management companies are created equal. Based on my experience, it is always best to compare fees and services, read customer reviews, and check accreditation by UK financial regulatory bodies before committing to one company.

How professional are debt management companies?

Debt management companies must act professionally at all times. They are regulated by the Financial Conduct Authority (FCA) and professionals working in the company, such as Insolvency Practitioners, are regulated by other governing bodies. 

However, it is worth noting that there may be some unregulated debt management companies in operation. It is vital that you only use debt management companies that have been regulated by the FCA.

Do debt management companies charge?

Debt management companies are commercial and therefore charge for their services. However, many debt management companies offer initial debt advice for free to help debtors work out which of their tailored debt management programs they qualify for and could benefit from. 

You should never be pressured into using a debt solution after receiving advice. But if you do, expect to pay an initial fee for the company to set up the debt solution and possibly ongoing fees each month. 

The cost of the service will depend on the debt management company and the type of debt solution you choose. One of the most common debt solutions people use via a debt management company is a Debt Management Plan (DMP). 

What is the best debt management company?

There is no single best debt management company, but there are many companies that have an array of fantastic reviews and happy clients. 

In the table below, we’ve listed some of the most popular UK debt counselling companies and the specific services they offer. However, it is important to note that free financial advice in the UK is available from the debt charities listed earlier.

Company Name Area of Specialisation  Trustpilot Review Contact Number
NDH Financial  IVA  5* 0800 002 9051
McCambridge Duffy Insolvency Practitioners IVA* 5* 0800 043 3328
Creditfix IVA* 4.9* 0800 043 1431
Debt Guardians IVA* 4.9* 01257 793600
Carrington Dean Trust Deed
4.9* 0800 043 1320
*Advice on other debt solutions is available.

Where can you get free debt management services in the UK?

A number of different UK-based organisations and charities offer free debt services and financial advice for debtors.

For example, the following organisations provide free debt management plans:

  1. StepChange
  2. National Debt Line
  3. Payplan

In addition to the above, the following organisations provide free debt advice:

  1. Debt Advice Foundation
  2. Citizens Advice
  3. Community Money Advice
  4. Money Plus Advice
  5. Money Wellness

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Are debt management companies worth it?

Some debt management companies offer fantastic services at competitive prices, making them worthwhile for some debtors. 

But before you use a debt management firm, you might want to check if a debt charity can offer you a comparable service for less cost. Getting debt advice from a charity is always worthwhile. 

But a debt management company might offer services and solutions not possible through some charities. 

What to look at while selecting a debt management company?

When looking at debt management companies and debt counselling agencies online, there are lots you should look out for. 

Here are some of the most important:

  • That they are certified and FCA approved
  • They have good reviews (use external websites like Trustpilot and not just their own website reviews and testimonials. 
  • They offer several different solutions. Variation ensures you get the best-fitting solution for your situation.
  • Their website is transparent and offers contact information. The worst debt management companies will usually only communicate via website forms, to begin with and usually only have a single-page website with no valuable information or FAQs page.

You should also scroll to the very bottom of their homepage to the small print. This is where you can usually see if the debt management company is providing the debt solutions themselves or outsourcing to a company with an insolvency practitioner.

Some appear to be debt management companies when they are really just lead generation websites that pass your details to real debt management companies in return for a fee. 

Although there is nothing wrong with this, and the debtor will get the same information, some people prefer to go directly to the debt management company rather than through the middleman. 

Do I have to use a debt management company?

You don’t have to use a debt management company to arrange informal debt solutions. But formal debt solutions have to be arranged and monitored by an insolvency practitioner, which means they cannot be agreed with your creditors yourself. 

But some debt charities can set up formal solutions as well. 

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