Britain has long been a nation of borrowers - our personal debt mountain is around £1.5 trillion and many people spend freely on credit.
The recessions has changed our attitude to debt. It's now harder to borrow money and at last many people are waking up to the importance of saving rather than spending. However, rising unemployment and tighter household budgets means increasing numbers of people are struggling to cope with their debt levels.
For these people there are a host of charities that offer a free debt service. These include:
Consumer Credit Counselling Service (0800 138 1111)
National Debtline (0808 808 4000)
Citizens Advice Bureau (Your local CAB can be found in the phone book)
Credit Action (020 7436 9937)
However, alongside these free debt services, there are many private companies that advertise help managing debt - in return for a fee.
With the average household debt rising to £58,320, according to the latest figures from Credit Action, there has never been more need for independent debt advice. But should you have to pay for it?
Yes says: Mike Thomas, founder of debt advice agency DebtWizard
The UK debt industry is simply too big for the two free debt advice charities to deal with. Without fee-charging firms, the debt charities would grind to a halt.
The Citizens Advice Bureau (CAB) is receiving an average 7,423 new debt problems a day.
Many people don’t seek help until their debt is unmanageable, which means by the time they have waited from six to 10 weeks, the advice comes too late. Added to this, it’s often difficult for clients to get hold of their caseworkers, and each case usually has a time limit of just three to six months before it’s shut down.
It’s important to make an informed decision about the kind of debt service you want. Many people would rather make an appointment to speak to an adviser immediately for a personal service than be put on a waiting list or stand in a queue on the high street outside their local CAB.
Generally speaking, you get what you pay for. Fee-charging firms have more resources to employ hands-on staff to pressure creditors to freeze interest on debts and halt further charges.
Of course, you should avoid companies that charge too much. Some firms ask for three months’ payment in advance, but there are many other professional firms that will do the same job with just a one-month advance fee.
What many people don’t realise is that free advice services are funded by the creditors, so when they propose a debt repayment plan, the creditors set specific guidelines for expenditure budgets – for example, for housekeeping and clothing.
I’ve seen these budgets and they’re not realistic. Some clients have told me that they have not been allowed enough money to live on and are therefore not able to complete the plan.
So, while free debt advice is the right choice for some, you should explore and understand all your options first.
No says: Malcolm Hurlston, chairman of the Consumer Credit Counselling Service
It’s illogical to pay for help to deal with debt when you can receive better advice for free. Over the course of a debt repayment plan, consumers pay an average £5,000-£7,000 in fees to debt management companies; this will worsen their debt and increase the time it takes for them to become debt-free.
We work closely with the creditors; most of them will freeze interest and further charges for you, if you agree to follow a debt repayment plan. However, if they refuse, our advisers can put pressure on them to comply. There’s no need to pay for this service.
When you call our helplines we will arrange an interview or suggest help through our online debt remedy service.
A third of all people who seek our help find a suitable solution through our free, confidential debt remedy service, which takes an average 23 minutes to complete online. We provide you with a detailed personal report, which includes our recommendations of how best to move forward.
The reports are very personal, but if you still need to speak to an adviser, we can use this recorded information to progress quickly.
If you arrange an interview, we can recommend a course of action within an hour – or slightly longer if you are in a complex situation, for example if you are self-employed.
I don’t believe the advice is as good from paid-for services. They are profit-driven and more likely to encourage you into a repayment plan simply because they earn a percentage of the repayments, even if there is a more suitable solution for you, such as a debt relief order.
It’s very rare that someone would be better off paying for debt advice.