Half of people who pay fees for debt management plans don’t know they can set up these plans for free. Worse still, research has found that plans set up by fee-charging companies are more likely to fail than free ones.
The survey commissioned by Lloyds Banking Group and the Money Advice Trust found that people struggling with debt often make decisions out of distress, and don’t shop around for the best debt solution.
It’s easy to understand why – it takes a lot of bravery to face up to debt problems. Having made the difficult decision to do so, many people respond to the first friendly TV advert they see. The relief of taking action can block out any thoughts of comparing the alternatives.
It doesn’t pay to pay
The survey also found that around one in ten people paid all their fees up front. I think this is unacceptable – that money could be used to pay off the individual’s debt, rather than pushing them further into it. For example, one interviewee from the survey had made two upfront payments of £662 just for setting up their plan.
Our latest Quarterly Consumer Report revealed that 11.3 million households have borrowed money or taken out additional debt in the month before. In addition, 800,000 households took out a new credit or store card in that time, and a similar number took out a payday loan.
That’s a huge number of people who may need debt advice at some point. As it is, one in four consumers will be cutting spending on essentials, while one in three have no money left at the end of the month. So when you’ve cut back as far as you can, where do you turn next?
Find advice for free
Hopefully, the answer should be one of the free debt advice organisations like National Debtline, StepChange Debt Charity (formerly known as the Consumer Credit Counselling Service) and Citizens Advice. If you or someone you know is struggling with debt, point them towards one of these organisations before they pick up the phone to a poor-value fee-charging company.
I never tire of repeating the debt mantra: why pay for something that you can get free, and better, elsewhere? Have you ever had experience with an expensive debt management company? Were you aware that free alternatives were available?
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