Lucrative and growing market in patching up personal finances (or not)

It IS estimated that 375,000 people are in commercially arranged debt repayment plans, at a cost of some £250 million a year in fees.

The firms typically work out how much money is available for repayments by detailing existing expenditure, including household bills and priority repayments such as mortgages. They then act as an intermediary between creditors and the debtor, creating a schedule of repayments based on the latter’s ability to pay, the priority of payments and the amount owed.

The plans are usually marketed at people with debts of less than £15,000, two or more creditors and enough income to make repayments. Debt-management companies’ customers are more likely to be in work and have higher income than people who use free advice services, according to Citizens Advice Scotland (CAS). While debt management plans can be drawn up for free by charities including CAS and the Consumer Credit Counselling Service, the pressure on their services means some people are turning to fee-charging debt-management companies in the search for a quicker solution.

Fees are usually a percentage of the total repayments – often in the region of 15 per cent – but, as the latest CAS report reveals, many debt management companies are charging upfront fees without carrying out any work.

The number of firms in the market has mushroomed in recent years as demand for debt solutions has escalated, with operators needing only a consumer credit licence and to abide by the Office of Fair Trading’s debt management guidance.

You can check if a firm is on the consumer credit register at www.oft.gov.uk.

JEFF SALWAY