Debt Management Plans
Debt Management Plans do not operate within Insolvency Legislation but are a formalised agreement between the individual and their unsecured creditors. The agreement is often negotiated by a third party management company who charge fees for their services. While the Debt Management Plan Protocol offers some protection and guidance to individuals, it is a voluntary industry standard only and therefore if a management company has not signed up there may be little recourse if things do not turn out as anticipated.
Typically such an arrangement will require the individual to make regular payments to the management company who will then distribute the money to the creditors. Such schemes are not however legally binding and cannot oblige creditors to participate and even those who initially choose to go along with it may be able to change their minds. Creditors may be willing to freeze interest, but frequently require the current debt to be paid in full which can mean the arrangement lasts for a decade or more. While the limitless length of the arrangement can make the monthly payment manageable due to the extended payment term, there is little resolution for the individual concerned given the uncertainty of future creditor action.
Debt Consolidation Loans
Debt Consolidation Loans serve to reorganise or clear debts by swapping some or all of the creditors for one creditor, the loan provider. This can be advantageous if the new monthly payment results in a lower amount than had previously been paid. However there are many additional factors that need to be considered prior to taking this course of action such as whether the lender will want to take a charge on your property, the level of any arrangement fees charged by the lender and the term of the loan which will generally lengthen the repayment period and the higher rate of interest charged. Consolidation loans also do not address the underlying problems of over spending therefore increasing the likelihood of a similar situation arising in the future.
Specific advice should be obtained before taking action, or refraining from taking action, on any of the issues covered above.
For further information, please contact one of our Partners who will be able to assist you.