Is a “free” debt management plan always better than paid debt help from a fee-charging company?

I’d like to start by saying ClearDebt Group is a fee charging debt resolution company, proud of what we do and how we help people. Our brand ClearDebt does IVAs and Abacus provides fee-charging debt management plans.

I’ve written before about the assumption many make that free debt advice is always good advice (something I don’t agree with). You’ll find links to those blogs at the bottom of this one.

But, in this blog, I want to concentrate on the question of whether a debt management plan from a fee-free advisor, is automatically better value than a debt management plan or an Individual Voluntary Arrangement (IVA) from a fee-charging debt resolution company like ClearDebt.

I touched on this in another recent blog (IVAs – A Question of Perspective) which looks at some of the key differences between IVAs and DMPs – and critiques leading creditor-funded provider, CCCS’, perspective on this.

Today’s blog has been prompted by two recent blogs from Payplan (a creditor-funded company), the first dealing with a client’s experience of a debt management plan and the second comparing IVAs and DMPs.

In both cases I have commented on the articles and, in both cases, my comments have (at the time of writing, either failed to be published or have been censored. So, I decided to put my thoughts here instead.

A Payplan Client’s Experience

Dawn’s Story:It’s a really good news story about a client (Dawn) who has managed to repay most of her £28,000 debt in four years (and will probably succeed in paying off the lot in 52 months, or thereabouts). But, it raise issues with me because the client said “I have 4 payments left (depending on interest/charges etc) and it feels so good.”

Great – but the fact that she seemed not to be sure about interest and charges niggled me.

The issue of transparency when it comes to freezing interest charges

Yes, some creditors freeze interest and some don’t, but a fee-charging debt resolution company is obliged to ensure the client knows what’s what. The fact that this Payplan client didn’t seem to know brought to mind this article from the Guardian published a couple of weeks ago – from which it appears that Payplan was paying a client’s creditors late (debt management companies are supposed, usually, to pay creditors within five working days of getting funds from the client) and, possibly, causing additional charges – Payplan seems to have thought the client owed £143, in fact, there was £4,086 left to pay.

Cases where an IVA is more suitable than a Debt Management Plan

In Dawn’s case, the description of her case led me to think that an IVA (where interest and charges would be frozen for certain, and the possibility of debt forgiveness existed) might have been a better choice for Dawn – so I commented: “It’s great that Dawn has got this far. I wonder, how long has this taken? Also I note that she says “I have 4 payments left (depending on interest/charges etc) and it feels so good”: so presumably her interest and charges were not frozen as they would be in an IVA. Why wasn’t a five year IVA possible in this case?”

PayPlan published this and responded. So did Dawn (thank you – it takes a lot to talk publicly about your debt situation). But i wanted to know more and I left the following: “Dawn, I think that’s brilliant: So you must have been paying what, about £540/month (assuming 52 months and most interest and charges frozen?”

Payplan published: “Dawn, I think that’s brilliant.”

I am not implying Payplan did the wrong thing with this client. There’s no such thing, really as a typical debtor: every case different. And I also understand Dawn might want to protect her privacy. But that should have been said. I really think this case is worth exploring to help others understand when a DMP is the right choice over an IVA (If an IVA is possible, a DMP will rarely be the most appropriate advice).

The same issues are explored in this thread from IVA.co.uk (CCCS – Indifference), which seems to indicate that this creditor funded organisation takes relatively little interest in whether it’s clients are still paying interest.

IVA vs DMP

Which brings me to Payplan’s second blog, a simple DMP vs IVA comparison. It’s pretty good. But it lacked one important point. So I commented:

“How about adding: “all interest and charges are frozen when your IVA passes creditor’s meeting”, as this often means a debtor pays thousands less than they would in a debt management plan.”

This is still, as I write, awaiting moderation. It’s fact. It makes a huge difference to many debtors. I don’t even want credit for it, I’d just like to see it in the list. It’s something people should know. Payplan does make the point that “Any debt remaining after your IVA is completed is written off.”, but it doesn’t attempt to quantify this. Probably wise; all cases are different – but it seems rather underplayed as an advantage because – again, This can make a huge difference to the debtor. IVA and DMP contributions are usually similar (though DMP contributions are often larger because creditors won’t accept that people in DMPs have financial emergencies whilst they are in their plan) But the typical IVA lasts half the time (five years) of the typical DMP.

Payplan should add one other point to their list of IVA bullets (I’d comment – but what’s the point?): Houses aren’t under threat in an IVA (but could be if you failed to complete the IVA and went bankrupt), but debtors with equity will be asked to make a contribution from that toward the end of their IVA – this is sometimes a pragmatic reason for choosing a DMP instead.

We welcome all comments on this blog and will publish all, unedited, unless they are scurrilous, libellous, pornographic or scatological.

Fee vs Free debt Advice – older blogs:

You get what you pay for

Value and Standards