Derry people warned about using debt management companies

A Derry advice worker has warned local people against using Debt Management Companies - warning that you end up paying out more money than your original debt and falling further into arrears with your creditors.

Emma Tracey of Advice NI, who is based at the Disability Action building on Strand Road, said there had been a marked increase in the last two years in the amoung of TV and internet advertising from Debt Management Companies (DMCs) offering clients ‘free debt solutions’.

“Many of the DMCs claim they have the ability to write off a huge proportion of an individual’s debt,” she said. “Many DMCs advertise their services by asking a client to ‘simply take a free debt test and find your debt solution today’, very appealing to a client suffering under the pressures of dealing with debt.”

However she warned: “DMCs nearly always charge clients a monthly fee and often an ‘upfront fee’, which can be anything thing up to hundreds of pounds and is required when the client first signs up for the service.

“More often than not, DMC’s do not send payments to client’s creditors in the first few months of the client availing of their services which has the effect of pushing the debtor further into arrears and putting them at risk of legal action or even bankruptcy.”

Ms Tracey said that in September of last year, the Office of Fair Trading, which plays a leading role in promoting and protecting consumer interests in the UK, published their debt management compliance review findings.

The OFT announced that it had warned 129 of 142 licensed firms to change their practices immediately or lose their licences.

In January of this year, 35 DMCs had surrendered their trading licence and at least 15 were facing licensing action as a result of the compliance review.

Ms Tracey said more people were likely to find themselves in financial difficulties as the recession continues. “The expected rise in interest rates later this year is likely to lead to an increased risk in mortgage repossessions. This along with the radical changes to the benefits and welfare system means debt will continue to be an ongoing issue in 2011 for many households in Northern Ireland.

“It is important people know where to go to get debt advice. We need to make people aware that in many instances debt advice is not ‘free’ as is often advertised.

“Rather there are hidden costs to the person in debt. Advice NI advisers always offer free advice on solutions that are in the best interest of the client.”

To avail of Advice NI’s free and independent debt advice service, contact Emma Tracey on 02871360811 or