Debt Management Services
Core concepts
Debt management questions test debt advice, budgeting, debt consolidation, debt settlement, IVA-style arrangements, and insolvency routes. Know the difference between debt management plans (informal, negotiated repayments), debt consolidation loans (one loan replaces several), and formal insolvency (bankruptcy, arrangement).
Understand priority vs non-priority debts (mortgage/rent, utilities, tax vs credit cards), affordability, creditor negotiation, and fees. Know credit file consequences and cooling-off rights.
Traps
- Treating debt consolidation as debt reduction - it usually extends the term and total interest.
- Forgetting priority debts must be addressed first.
- Assuming a debt management plan is legally binding - it is informal.
- Overlooking fees charged by commercial debt firms.
Rule of thumb
Priority debts first (home, utilities, tax), then non-priority (cards, loans). Consolidation only helps if the underlying spending is addressed.
Worked example
A client with five credit cards at 20% consolidates into one loan at 10% over 5 years. Monthly payments fall, but total interest may rise if the term is longer - always compare total cost.