by Nasim Syed
5. October 2011 16:30
Thousands of homeowners and tenants who owe money turn to independent debt advisers for advice about how to deal with their financial problems.
Financial management plans are one of the most popular and widely used tools for dealing with debt.
Taking advice lets someone who is under pressure from debt collectors or lenders gain some valuable breathing space to reorganise their finances without the stress of endless telephone calls and letters demanding more money.
Financial management plans are straightforward strategies for dealing with debt -
• A debt counsellor profiles your financial problems by looking in details at your income and expenses
• Debts are prioritised between daily necessities like mortgage payments, food and energy bills or other borrowing like credit cards, store cards and overdrafts.
• The debt counsellor will assess your ‘disposable income’, which is the cash you have available each month to repay what you owe
• The financial management plan is agreed with your creditors – generally with them receiving a payment from your disposable income pro rata the size of the debt.
For example, if you owe £10,000 in total, with £1,000 to a single creditor, then they get 10 per cent of your disposable income. If your disposable income increases before the debt is repaid, the amount you pay increases as well.
Plans have no set timescale. Courts accept debts should be repaid within a ‘reasonable’ time but do not define how long that is. Most courts consider 10 years is reasonable – depending on the size of the debt and the amount of disposable income available to make payments.
Creditors do not have to accept the plan and can still go to court to recover their money if they feel the payments are not reasonable or if you miss making payments.
In some cases, creditors will agree to freeze interest and wipe out account charges while you are in a financial management plan.