You may have seen the advertisements in your local paper; a claims management company (CMC) offers to get all your debts written off on a no-win, no-fee basis. Sounds too good to be true? It probably is.
A CMC is a new breed of debt management company, which uses a loophole in debt law allowing such companies to write off debts with creditors if there is proof of unfair treatment towards a borrower from a creditor. In theory, this sounds like a good plan, but the reality is that many who go to a CMC for debt resolution end up in further debt as a result.
Despite the claims of a No-Win, No-Fee service, anyone wishing to avail themselves of this will be requested to pay an initial fee of around £500, plus an additional £125 for each item to be disputed. If a borrower has 3 loans, a mortgage and a credit card they wish to rid themselves of, this would amount to around £3000 in setup fees alone.
Most CMC's offer a refund of the initial fee if their claim is unsuccessful; however, this doesn't apply if the claim was for a credit card or personal loan debt. A refund also won't be issued if the CMC decides to abandon such a claim for any reason.
It's been found that many of the claims taken on by CMCs are deemed to have "no reasonable chance of success" and the companies themselves are giving their customers an unrealistic idea of the amount of compensation they can expect. This leads to many disappointed borrowers who are more than likely in a worse financial situation than before.
The Financial Ombudsman Service is in place to offer support and advice to anyone who thinks they have been unfairly treated by their bank or lender, and this service is free. Anyone who feels they cannot cope with the level of debt would do well to seek advice from this service first, and then look at exploring other, less risky, options which don't require such a huge upfront fee.
There are ways of solving
debt problems which are less costly. Look for a
debt management company which will advise you about lowering your
debt rather than claiming to write them off.
