OFT - Debt Consolidation Companies

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The OFT has launched a study into the debt consolidation industry. See link below.

If you would like to speak to John Fairhurst, MD of Payplan about the OFT study, he is available on 01476 539200.

Payplan, one of the UK’s leading providers of FREE debt advice and management, offers an alternative solution to debt consolidation services and fee-charging debt managers as a way of controlling consumer debts. Payplan’s service has no hidden charges or management fees so every penny goes towards paying off consumers’ debts as quickly as possible. (Please find below a table which showing pros and cons of debt consolidation vs. free debt management plans)

Speaking about debt consolidation, John Fairhurst, Managing Director, Payplan says

“Although debt consolidation companies may seem to offer an ideal solution, consumers are basically paying one loan off with another, thereby not actually ‘freeing’ themselves from the debt trap. However, Payplan knows how important it is to make repayments that reduce consumer’s debt. It is frustrating and pointless if they are paying high interest or management fees that effectively increase their debts.”

Payplan’s freephone number for consumers is 0800 719 7823 or they can visit www.payplan.com for a self-assessment of their financial situation.

http://www.oft.gov.uk/news/press/2003/pn_80-03

Debt Solution Pros Cons
Consolidation loan/re-mortgage
  • Monthly repayments are often reduced Credit rating is preserved providing payments are maintained
  • No need to demonstrate financial difficulties
  • House at risk if payments are not maintained.
  • Overall cost is often very high.
  • Little control over future payment levels if interest rates change
Debt Management Plan
  • Manageable repayments based on what the individual can afford.
  • Only one monthly payment.
  • Support negotiating with creditors · Interest often frozen.
  • Payment levels can be easily varied if circumstances change.
  • Repayment period extended to allow for reduced payments - typically lasts 7 years.
  • Creditors not bound by the arrangement.
  • Will have negative effect on credit rating
Individual Voluntary Arrangement
  • Manageable payments based on what the individual can afford.
  • Arrangement typically lasts 5 or 6 years with any outstanding debts written off after that period.
  • Legally binding so once in place, creditors cannot take legal action against the individual for debts included within the arrangement
  • Creditors must vote in favour of the arrangement before it can commence.
  • Assets such as equity in a home may need to be released and contributed towards the debt in addition to monthly payments
  • Only available to people in genuine financial difficulty