A guide to debt advice organisations

By Marianne Curphey

If you're in debt trouble, figuring out where to turn for help can be a problem in itself.  There is sometimes a fine line between a legitimate company and a money-hungry business, but you can look for these signs to confirm you're in the right place.

Figuring out how to tackle large debts on your own can be difficult. A December 2014 report from the debt charity StepChange says people in the UK are let down by legal protections surrounding debt and, as a result, millions are at risk of falling deeper into debt.

debt-advice

The report reveals that when people ask creditors for help, they often
receive no support and, in many cases, take on further borrowing to pay back existing debts. Nearly 80% of clients surveyed by the charity said
they had contacted at least one of their creditors before seeking debt advice, and of those people:

  • 32% said none of their creditors offered to help by freezing interest and charges or halting enforcement action;
  • 33% said none of their utility providers offered any assistance;
  • 38% said their landlord offered no support; and
  • 50% with Council Tax arrears said their council failed to help.

1. Seek free advice
Your first port of call should be to one of the debt charities that offer free advice and help, says Iona Bain, founder of the Young Money blog.

"If you opt for paid debt advice, you will be dealing with a money-making business," Bain says. "The fees could vary a great deal, but the last thing you want to do is to add another debt to your existing ones."

She says it can be difficult to come up with a plan on your own, and so a charity such as the Money Advice Service can help you. Andrew Smith, spokesman for the Debt Resolution Forum, a trade association that promotes professional standards for resolving debtors' financial problems, suggests the Citizens Advice Bureau as well.

If you do choose a service that charges a fee, know that a reputable company will be clear about its fees, and will never ask you to sign blank documents.

"They should tell you about their fees -- if they have not told you in the first [phone] call and set it out so that you understand, then you should walk away," says Smith. "Your initial advice telephone call should be about 40 minutes, and if it only takes five or 10 minutes then you should probably not proceed further with that organisation."

"Be wary of any agency that asks you to pay upfront -- that should be a red flag warning," adds Laura Mostaghimi, money adviser at National Debtline.

2. Check for FCA status
As of April 2014, the Financial Conduct Authority (FCA) took over regulation of debt advice companies.

If you are dealing with a debt company that charges for advice, you should look on their website to see if they have FCA status, and what their registration number is, Smith says.

"You can then check the number on the FCA website and that will confirm whether the company is appropriately licensed and see whether the FCA has taken any enforcement action against them," he explains.

Many companies have withdrawn from the market, and those that stayed are required to do extra training and meet regulatory standards, he says.

3. Don't just hear the advice -- use it
Simply going to an advice company is not enough to fix your finances. It's important to understand the advice and change your spending habits so you stay on the right path.

"If you don't identify the causes of debt in the first place, then you are going to get back into bad habits and put it all back on the credit cards again," Bain says.

"The majority of people get into debt as a result of a major change in their financial circumstances -- for example they lose their job, or they are ill, or they have a new baby," says Smith. "The first thing you need to do is recognise that you have got debt issues and take steps to deal with them," Smith says. He suggests partnering with a trusted friend who can help you continue good habits.

"You need a robust friend -- someone who is not judging you, but is helping you," he says.

See related: What can you expect from a debt advice service?, Are you a candidate for Debtors Anonymous?

Published: 19 March 2015