A quarter (26%) of debt management plans (DMPs) will last ten years or more, according to new research from insolvency trade body, R3
The new research reveals that many consumers are still struggling to clear their debts over a decade after setting up a repayment plan, even though a DMP is meant to be a short-term arrangement between an individual and their unsecured creditors. R3’s survey also reveals that 22% of individuals in a DMP say that they were not asked for proof of their income or expenditure before their plan began.
Sales-driven debt advice
Martyn Saville, Which? principal researcher, commented: ‘These shocking new figures make it clear that many consumers are still being sold inappropriate debt solutions by commercial debt management companies.
‘A debt management plan is designed to help consumers get on top of their debts, usually in the short to medium term. It is certainly not suitable for long-term debt repayment. In many cases, bankruptcy or an individual voluntary agreement (IVA) may have been a more suitable solution, even if it is not as profitable for the debt management company over the longer term.’
‘Slaves to debts’
Commenting on the new research, R3 president Peter Sargent said: ‘DMPs can play an important role in offering a manageable solution to individuals who are able to pay back their debts. However, the sheer length of some plans indicates that the amount of debt these individuals have is too large for a DMP. By entering into these inappropriately lengthy plans people become slaves to their debts.
‘Moreover, our figures show that a third of individuals who are currently bankrupt or in an individual voluntary agreement (IVA) used to be in a DMP. The volume of those who go from DMPs into a formal insolvency procedure suggests that, in some cases, DMPs prolong distress when another procedure would have been more appropriate to start with.’
Which? debt advice
Individuals struggling with debts should seek independent, free debt advice directly from organisations such as the Consumer Credit Counselling Service (0800 138 1111), National Debtline (0808 808 4000) or their local Citizens Advice Bureau (number in the phone book).
Consumers should avoid commercial debt management companies – why pay for a service that is available better and free elsewhere?
For more detail, see the Which? guide to dealing with debt. If you think you may be at risk of losing your home, read the free Which? guide to repossession.
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