Debt Management Companies – Reasons to Avoid

There seems to be plenty of firms operating in Ireland who offer to help people sort out their debt problems. Many households in Ireland are struggling with debts – and these companies are trying to make money out of it.

They make offers such as:
Clear All Debts You Can’t Afford With Government Backed Scheme
or  “Would you like to be debt free now? Contact us to wipe away your debts
One firm’s advert states “The Irish Government Insolvency Act Can Wipe Upto 75% Of Your Debt” …..There is no such law in Ireland – yet.

Update – Jan 2012  – The Central Bank has recently warned customers of one debt management company  – “Yourmoney”   – not to pay them any money. The Central Bank issued a letter stating that  it had inspected the company and had “reasons to be concerned about the nature of the company’s operations and its handling of customers’ money.

The Central Bank is also advising consumers to be aware that some  bill payment and debt management companies may not be regulated by the Central Bank. Where consumers  provide money to an unregulated company for onward payment to a creditor, the handling of this money will not be subject to segregation and safeguarding rules.

These commercial debt management companies charge for their work – and the Office of Fair Trading in the UK found some good reasons why you should avoid them.

Poor advice:  the investigation found that  many advisers were providing consumers with poor advice based on inadequate information. They were not  offering the solution that is in the best interests of the consumer, but instead that which is most profitable to them

High fees and charges: Monthly debt management plan  fees are typically about 17% of the repayment. The majority of the firms  front-load their fees with some imposing a minimum upfront fee of several hundred pounds. In most cases, creditors receive nothing for at least the first two months, pushing the debtor further into arrears.

Unregulated  : The debt management market is currently  unregulated in the UK and Ireland .

Cross-selling: Some Debt Management firms are part of a group that offers other services, such as loans.

Risk to your repayments:  Debt management companies take money from you to pay your debst .   The collapse of the company  could lead to the consumer’s money being lost.

Our advice is to contact a free service if you are in trouble with debt.

Call MABS  on 01 8129350