If you are planning on starting a debt management plan, we consider whether it is best to pay a debt management company to help you or use a free service.

Debt management plans (DMP) are one of the most popular ways of dealing with personal debt problems.

Because a debt management plan is an informal agreement with your creditors, there is no reason why you cannot implement the solution yourself.

However many people do not have the time or the nerve to negotiate reduced payments with their creditors or simply welcome the option of being able to make one payment each month and let someone else deal with everything for them.

If this is you, then when deciding on which debt management company to use you need to decide if you want to pay a debt management company or use a free debt management service.

Will you have to wait for a free service?

One of the traditional arguments used by fee charging companies is known as “going NHS v Private”.

The inference here is that you may be able to get a free service but you will have to wait a long time for it whereas by paying you will get your debt management plan far more quickly.

If you are planning on using the CAB (Citizens Advice) to help advise you about your debt problem then you may certainly have to wait to get an appointment.

However there are organisations which will help you implement a debt management plan for free where you will not have to wait. They have large call centres and are manned by many staff waiting to take your call.

In whose interest is the free service provider working?

Despite the fact that the NHS v Private argument is generally a non issue, there are other things to consider when deciding to use a free service.

The question you need to ask is who is ultimately paying for the service to be provided? Free providers are unable to maintain a staff of many hundreds of employees on thin air. So how is it that these staff are paid?

The answer is that when you start to pay a debt management plan agreed by a fee provider, these organisations are paid a percentage of the money they collect by the creditors themselves.

This in itself is not a problem. However if they are paid by the creditors it does then raise the question of exactly whose interest the free providers are working for. The free providers need to adhere to strict guidelines laid down by the creditors which you may find unreasonably inflexible.

Using a paid for DMP service

The alternative to using a free DMP service is to pay a commercial debt management company. Generally speaking the advantage of doing this is that you are paying the DMP company to work in your interests.

When putting together your debt management plan living expenses budget, the DMP company will guide you on the living expenses amounts that you should stick to in order that your creditors will agree to your proposed payments.

However ultimately you decide what you need to live off and what you want to pay to your creditors each month. The DMP company will generally accept your wishes and put forward the offer you wish to make.

A paid for debt management company will normally work hard to ensure that your creditors stop further interest and charges on your accounts. It is in their interest to do so as if they achieve this you will clearly be pleased with the service and not want to move away from them and stop paying their fee.

If your circumstances change for the worse or you find yourself in a situation where you have been forced to borrow more (for example from a payday lender) your DMP company will be happy to help and add the additional creditor to your plan if necessary. They are unlikely to tell you they can no longer deal with you as they would be losing a valuable client.

Change company if you have made the wrong decision

At the end of the day the major advantage of using a free debt management service is that you do not pay a monthly management fee. Everything you pay each month goes towards paying your debt.

This is a very powerful argument. However there are still very good reasons why you might want to pay a debt management company to work on your behalf and these should not be overlooked.

Ultimately when choosing a DMP provider, you will have to make a personal choice. However, the good news is that a debt management plan is a flexible informal solution which means that you can start or stop it whenever you like.

If you want to you can change the company helping you to run your DMP at any time if you think you would get a better service elsewhere.

As such if you chosen to start your DMP with fee charging provider, you can always move to a free service later if you feel you feel your interests would be better served by doing so or vice versa.

Related DMP articles

If you are interested in reading more expert articles about debt management plans, please click on the following link:

http://www.beatmydebt.com/forum/viewforum.php?f=49

What to do next

If you are struggling with debt and are considering a debt management plan, visit www.beatmydebt.com

Our experts are available to speak to you about the DMP option and offer further help and advice.

Our vibrant debt forum gives free access to experienced industry experts and others who have suffered with debt problems and have been through the DMP process themselves.

Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.

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