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Debt Management

Introduction

The majority of us owe money to organisations and/or people for most of our lives, bills are a fact of life as are mortgages, credit cards and loans. But occassionally we may find ourselves deluged by debts and find ourselves lost as to how to pay them.

If you are in debt, don't ignore the bills, you are not the first to find yourself in this position, and you certainly won't be the last, read "record numbers seeking help with debts". You need to take action, get help and deal with the problem immediately.

If you have debts, you may benefit from contacting checkmydebts.co.uk to check out if you can have some of your debt written off and to find out if you qualify for a government approved debt solution that can legally write off 80 to 85% of your debt. This solution is for no longer than 5 years regardless of the size of your debt.

Once you are behind with payments to someone you owe money to, they have the right and the 'legal power' to get their money back. Just what actions they can take depends considerable on the type of debt, see the information at Community Legal Advice, some debts are far more serious than others. In the worst case scenario you could lose your home.

However, you should remember that you also have rights under law, and even though creditors have a right to expect you to pay them back, they do not have the right to bully or intimidate you in order to get what is due to them.

Dealing with Bully-Boy Tactics

In recent years the Office of Fair Trading, which licenses creditors and debt collectors, has taken action against debt collectors who insist on using bully-boy tactics, and they have made it clear that they will not condone certain practices that they consider to be unfair.

The practices by debt collection agencies that the Office of Fair Trading would considered to be unfair include:

Not giving adequate notice of the time and date they intend to visit
Using official-looking documents, such as letters resembling court claims, to mislead the debtor
Claiming a right of entry without obtaining the required court order
Failing to investigate or provide details when a debt is queried or disputed
Falsely implying or claiming authority, (such as claiming to be working on the authority of the court)
Pursuing third parties for payment when they are not liable

How can OFT help you?

Debt collectors are licensed by the Office of Fair Trading (OFT), which has considerable powers when it comes to dealing with companies that overstep the mark. This includes the power to take away the companie's licence to trade. Unfortunately, at this time, the OFT are unable to get any redress for you personally.

From 6th April the law changes. a new Consumer Credit Act comes into force which will make the Financial Ombudsman Service responsible for dealing with complaints from the public with regard to debt collectors behaviour. The new legislation states that any organisation dependent on the Office of Fair Trading for a consumer credit licence must have a formal complaints procedure in place.

After 6th April, if you have a grievance about how you are being treated by a debt collector, you should complain first, in writing, to the Debt Collection Company involved , the company must acknowledge your complaint within five working days and provide you with a progress report within four weeks, eight weeks later they must furnish you with a final report. The final report should state whether the company agrees that you have a valid complaint, if they feel you do not have a valid complaint they must explain why they reached this conclusion.

If the company fails to comply with any part of the complaints procedure, or your complaint remains unresolved, you can take your complaint to the Financial Ombudsman. In certain circumstances the Financial Ombudsman will be able to order the company to pay you compensation.

If the Debt Collection Company involved continues in the same manner they could face costs, each company will be allowed two free investigations a year but any subsequent complaint in that year will cost the company Ł400 per complaint, whether or not they are in the right or wrong.

You can also obtain help from the Citizens Advice Bureau or the Consumer Credit Counselling Service, and you should be aware that debt collectors cannot refuse to deal with third parties who are helping or advising you and/or acting on your behalf.

If you make a complaint about a debt collection agency, you should also complain about the original creditor, as the debt collection agency is acting on their behalf and the creditor is also liable to scrutiny, and could face having their own licences revoked if they do not ensure that their agent is behaving in a professional manner.

The Road to Debt

There are many ways that people can end up with unmanageable debts, but I would suggest that credit cards and store cards are at the top of the list of causes, but modern credit card companies offer a remarkable service to customers that, when used properly, can enable people to better manage the flow of their money and budget their expenditure. Many companies offer:

Zero percent transfers for up to a year
Up to 35 days interest free periods
Easy access to cash
World wide spending power
Internet and telephone Shopping
Free loss and damage insurance for goods purchased

What we need to remember is that NONE of this actually comes FREE, it has to be paid for by someone, and if you are in debt to the credit card companies and paying interest at 20 percent plus, that someone probably includes YOU.

Almost every credit card company will, from day one, allocate you a credit limit that is far beyond your ability to repay. Those that initially set a lower limit soon up the anti once they realise you are making use of your cards, whether you use them sensibly or not.

All banks want and need people to start paying them interest. If you only pay the minimum payment each month whilst spending to the maximum, they will love you to bits, and you will end up with an unmanageable debt.

It is not possible to clear large debts by just paying the minimum charge each month, an outstanding credit card debt of £10,000, repayed at £100 each month, with an interest charge of 15.9 percent, will take 220 months to repay and incur an interest charge of £11,936.66. This is a total repayment of £21,936.66 and is more than double your original debt.

Payment Protection Insurance (PPI)

The providers of rip-off payment protection insurance can also add to your debts, the more you owe the more you pay. PPI is an optional insurance policy that sounds very inviting at first and is sold to borrowers alongside credit and store cards, mortgages, motor finance, etc. In the event that you are unable to work due to an accident, sickness or unemployment, PPI pays your monthly repayments, typically for up to a year. Before you sign up for one of these policies do read the following articles:

Dealing With Debt

If you have several outstanding cards and/or loans you need to "analyse the situation" so that you can see what your current position is and work out how much you can afford to repay each month. You need to work out which debts you must deal with first and then make arrangements with all your creditors. When dealing with debt it is always preferable to let everyone, especially those to whom you owe money, know exactly what you intend to do about it. Many card and loan companies will help you, and allow you certain privileges, if you start off by communicating fully with them.

The two main bodies that have influence with the card, loan or financial institutions are the Financial and Leasing Association (FLA) and the Financial Services Authority (FSA). Both bodies give help and advice on their web sites for those who have found themselves with financial problems.

It is important that you understand which of these bodies to go to for information, and this will depend mainly on the nature of your problem. I would strongly advise that you visit both these sites and read the information they have available, you really can't have too much information at this stage.

Finance and Leasing Association

The FLA campaigns for best practice in lending and leasing. Their site provides guidance for consumers on the types of finance products (explaining some of the words used), money advice, guidance on how credit decisions are taken and what happens when you want to repay your loan early. You will also find tips on credit repair and fraud prevention.

FLA members include banks, subsidiaries of banks and building societies, the finance sections of leading retailers and manufacturing companies, and a range of independent firms. They provide a wide range of facilities, including finance leasing, operating leasing, hire purchase, conditional sale, personal contract purchase plans, personal lease plans, secured and unsecured personal loans, credit cards and store cards.

The FLA Lending Code sets out standards of good practice for the finance and leasing industry. It is intended to reassure anyone who applies for finance from full members that they are doing business with reputable organisations.

Financial Services Authority

By law, most financial services firms must be authorised by the FSA to do business in the UK. Once they are authorised, they must follow the FSA rules, FSA regulate the firms, which means they check that they are following the rules.

The firms regulated include banks, building societies, credit unions, insurance companies, friendly societies, financial advisers, stockbrokers, fund managers, mortgage brokers and insurance intermediaries.

The types of business FSA do not regulate include the sale and administration of personal loans, credit cards, second-charge loans and occupational pension schemes. Other agencies regulate or monitor these services.

Even though the FSA does not deal with credit cards and loan debts, it does have some very good advice on it's web site, in particular with regard to making complaints.

Updated: 08-07-2008 Contact Us | Top | Home |