Too many debtors repaying too much
Filed under: Credit Cards, Debt, Banking
Insolvency trade body, R3, has criticised debt advisers claiming that more than a quarter (26%) of Debt Management Plans (DMPs) will last ten years or more, when they are meant to be a short-term repayment plans. It described the problem as "debt slavery".A DMP is a payment plan between an individual and their unsecured creditors, such as credit card companies. But some of the firms advising those with huge debts are giving duff advice. Sometime going bankrupt would be a better option, something many people end up doing anyway.
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.
Slaves to debts
"By entering into these inappropriately lengthy plans people become slaves to their debts."Many people simply spend years paying and still go bankrupt. "Our figures show that a third (30%) of individuals who are currently bankrupt used to be in a DMP," Sargent says.
"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."
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.
Doomed
"It is incredible that organisations set up DMPs without these vital details," added Peter Sargent. "If this information is not verified at the start the monthly payments may be set too high - dooming the plan from the outset."R3's research also finds:
- 46% of insolvency practitioners have seen DMPs fail because the monthly repayments were too high
- 52% have seen individuals being 'pushed' into DMPs by creditors
- 35% of individuals in a DMP say that other options for dealing with their debts, such as bankruptcy were not discussed before starting a DMP
Reader Comments (Page 1 of 1)
3-07-2010 @ 2:23AM
Chris R said...
Banks need to be taken in hand and properly monitored.
To be frank they are cheating.
With Base Rate at 0.5% , why are bank and Credit Card iterest rates at between 14.5% and 39%. I am afraid that the risk argument no longer washes.
If as a lender you are concerned about the risk of someone's ability to pay their overdraft, you reduce the overdraft facility. The cost of returning an item is about 50p these days, because the whole system is automated; there is no human interventio.
In fact we now have an absurd situaion where my account may overdrawn at one minuet past midnight but at 09:30 the same day a credit of £21000 may be paid in by irrevocable, electronic funds. Even so, the items which that would have covered have been returned and I have been charged for it.
Together with what is extorionate interest rates, together with unreasonable fees, it is may be time to let the Banks Collapse, by investors withdrawing all their money. Following the Judgement in the Supreme Court (House of Lords) this has now give free rein to the banks to do what the want.
If the Banks and indeed the Judiciary are not careful they may find their proffessional lives very difficult to operate if they find themselves alone in the park. One of the reaons why so much of the UK work has gone overseas is because it is cheaper all round to employ somebody and to run your account without ludicrous charges.
As for the Bankers' bonuses, they should be recalled immediately as they have not been earned and the vast majority of peoples' problems have stemed from their negligence. And as for MPs..... Well, what more do you need to add?
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