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What are the disadvantages of using a Debt Management Company?

  • The fee – often equal to one month’s payment – about £200.
  • Possible one-off deposit payable at the start of the debt management agreement.
  • Possible administration fee of £30 a month for the debt management company to distribute payments to creditors.
  • Fees paid to a debt management company will reduce what you are able to pay to creditors.
  • They cannot always guarantee results. Creditors can still take action against you and don’t have to accept reduced payments or freeze interest.
  • Creditors can refuse to deal with debt management companies.
  • Creditors can consider rescheduled payments as a default and record this on your credit file. Where a first payment is taken as a deposit, account payments usually go into arrears.
  • Where a debt management company advises you not to communicate with creditors but passes correspondence to them, you could find yourself subject to legal action taken against you by your creditors without your knowledge.
  • Debt management companies will often only deal with non-priority debts. If they do accept priority debts, they are likely to consider all debts of equal importance and not pay priority debts any faster.
  • DMCs cannot give financial advice to maximise your income or ensure you are claiming full benefit entitlements. They may not be able to advise you of all options open to you.
  • DMCs may only want to deal with you if you receive an income and own your home so that they can place a charge on your property.
  • If a DMC does not produce a realistic financial statement, you could be expected to make unrealistic payments and could be more likely to default.

If you wish to use a DMC, our associates advisor will go through all of the above with you before you commit to any agreement.

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