We have 47 guests online

7 things you may not know about debt solutions

It is sometimes underestimated exactly how traumatic debt problems can be for a client, and many advisors are unaware of how easy it is to get involved in this area of advice. Simply by choosing right partner in this sensitive area, advisors can provide their clients with genuine help, and retain them for future business in the long-term.

1) Do I need to be authorised to give advice on debt solutions?

If you wish to advise a client on credit management or adjustment, you need to hold the relevant categories on your Consumer Credit License. However, if you don’t hold the correct categories you can work as an introducer to a specialist provider of debt solutions who will take full responsibility for all advice given. All you need to do is know how to identify clients who may be eligible for a controlled debt solution, and how to refer them.

2) Will there be any fees chargeable to my client?

Providers of debt solutions usually charge a monthly management fee, which is built into the clients’ monthly payment, and covers the work done to liaise with creditors, negotiate lower monthly repayments, freeze interest and charges, and distribute monthly payments. Reputable debt solution providers will also offer your client dedicated case managers who are available throughout the lifetime of any debt solution to provide ongoing support and guidance to your clients. Fees should always be communicated in a clear and transparent manner, and it should be obvious from the quality of service you and your clients receive how the management fees are justified. You should always be wary of providers who charge large upfront fees to your client before starting work on getting an effective solution in place.

3) Will a debt solution affect my client’s credit profile?

If a client enters into a debt solution, this is likely to have a negative impact on their credit profile, as the lower repayments mean that they are no longer meeting the agreed terms of their original credit agreements. However, if your client was struggling to meet their repayments anyway, the damage may already have been done. Debt solutions provide a lifeline for over-stretched clients who are genuinely unable to meet their existing financial commitments, and as long as the consequences are clearly communicated, the majority of clients are comfortable that the benefits of a controlled solution out-weigh temporary damage to their credit profile.

4) Can I market debt solutions for new and existing clients?

Yes – a lot of debt solution providers will offer you compliant templates and website facilities to enable you to actively prospect for new clients. You would be responsible for establishing your clients’ eligibility before referring them through to a specialist. Good debt management providers will offer you free marketing support and guidance in this area.

5) What’s the difference between a debt management plan and an IVA?

A debt management plan (DMP) is an informal, more flexible arrangement between your client and their creditors, which is usually managed by a 3rd party debt solutions advisor. DMPs can run for as long as necessary and are more suited to clients with lower levels of unsecured debt. An IVA is a formal arrangement, where your client is legally bound by the terms agreed. An IVA runs for a fixed period of time, and in most cases a significant proportion of the debt can be written-off. There are advantages to both solutions, and an individual assessment of your clients’ specific circumstances should always be taken before any recommendation is made.

6) Will my client lose their home if they go bankrupt?

Not necessarily. Depending on levels of equity available, a bankruptcy may not result in a forced sale. Good providers of debt solutions should always explain exactly what can or can’t be achieved, free of charge, before a client needs to make any decisions on the options available to them.

7) Will creditors continue to chase my client once they are in an arrangement?

Your client may receive some contact from their creditors during the initial steps of an arrangement. This is usually during the early stages when lower repayments are being negotiated. However, a good debt solutions provider should always offer a full creditor liaison service which means that any post or phone calls can be diverted away from the client. Once offers of repayment are accepted and arrangements are in place, all communications from creditors should cease, as they will deal directly with the provider.

It is worth remembering that clients with large amounts of debt may be receiving up to 8 calls a day from each individual creditor. These, combined with threatening postal correspondence can be extremely traumatic for the client. Once this contact is reduced, your client can regain their quality of life.