Abacus Daily Debt News

Debt management companies find favour with creditors

Not so long ago debt management companies were the scourge of the UK’s lenders. Now the same lenders are keen to get their clients with repayment problems on to debt management programmes.

“How dare debt management companies encourage our clients to default of credit agreements made with us” - once complained the creditors. 

With so many debtors defaulting on their loans and opting for an IVA, creditors are increasing encouraging their customers to enter informal debt management programmes.

This is because on debt management, creditors generally freeze interest and charges, but eventually get all their money back. With an  IVA creditors typically write off about 50% of the debt, sometimes 70%. On top of this, creditors pay for the costs of the IVA, which can be £8000.

In effect, debt management companies provide free credit control for creditors. Debtors are more likely to pay,  and then keep on paying a debt management company as repayment levels are affordable.  This is clearly preferable to an IVA.

Creditors have hardened their attitudes to IVA’s and IVA companies. They are unhappy at the aggressive marketing of IVA’s and the fees charged. They are fighting back by rejecting more IVA proposals than before and trying to force down the fees charged by the IVA company.

IVA company Debt Matters have more or less thrown the towel. Their stock market value was £100 million in August 2006, now it’s £5 million. They cited rising advertising costs and creditor attempting to drive down fee as the reason for poor performance.

This is not a problem for ourselves as we are already an low fee IVA company.

Our model is likely to become the industry normal in the coming months and years as many of the higher fee chargers fall by the wayside as creditors are less willing to do business with them.

For more information on Debt Management visit 60second advice.