But how are they funded? And what are the alternatives?

The Citizens Advice Bureau (CAB) are a charity, which was setup at the outbreak of WW2, and continues to this day on donations from the public and various corporate donors.

It may come as a surprise to some people that there are a large number of financial institutions that donate to the CAB, here is a list which I found on their website here:

• Abbey Charitable Trust
• Alliance and Leicester
• Bank of America
• Barclays plc
• Barclaycard
• Department of Trade and Industry
• Experian
• Friends Provident Foundation
• GMAC RFC Foundation
• HSBC
• HM Treasury
• Lloyds TSB Foundation for England and Wales
• MBNA
• Money Advice Trust
• Nationwide Building Society
• Provident Financial plc
• Prudential
• The Royal Bank of Scotland

There are other corporate donors, from solicitors firms to name one sector that stands out, but the proportion is far smaller than that of the banking and finance industry.

When you look at the Consumer Credit Councelling Service website you see that they are entirely funded by the credit industry which according to their website means:

“It is this totally unique mechanism that allows CCCS to provide its services totally free to consumers.”

I would perhaps argue that it also means that the credit industry has a huge strangle hold on debt advice and debt management in the UK as they sponsor the two biggest debt help charities in the UK and no doubt have input on how these two charities deal with consumers’ debt problems.

I know from my own experience that when I spoke with the CCCS they were very helpful, but ultimately at the time they refused to set me up on a debt management plan because I couldn’t meet their minimum criteria for a monthly payment – 1% of the balance of my debts each month.

It would seem to me that the lenders being so closely involved with the debt help charities is a “slight” conflict of interest in that there may be certain consumers that are not getting help when they need it most because they don’t fit the criteria by which the charities work. Whereas commerical debt management companies are able to get debt management plans agreed based on what is affordable to the consumer, regardless of whether it is agreeable to the creditors.

It seems like in most areas of life, if you want good, impartial advice you have to pay for it, which is a shame, because when people are needing debt advice, the last thing they need is a bill for a few hundred quid to setup a debt management plan.

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An IVA must be setup through an insolvency practitioner, and so it will cost you money to setup.

All of your creditors get a chance to vote on the agreement, either to accept or reject the offer you make via your IP (insolvency practitioner), though if 75% of the creditors by value of debt accept the proposal the remaining creditors are obliged to accept the proposal.

You should consider an IVA when the thought of going bankrupt is too severe to contemplate, in addition to the detrimental effect a bankruptcy has on your credit rating.

If you have a job or are self employed, and therefore have an income, it makes sense to consider an IVA over five years, but beware that for those five years you will have very little money left over after the IVA payments for any other non-essential expenses.

Another caveat to an IVA is that if you default on the agreed payments during the five year repayment period, your creditors will petition to make you bankrupt. You really need to ensure that if you are employed that your job is safe and secure, or if you are self-employed, that your business is robust.

One main advantage of using an IVA rather than a bankruptcy to clear debt is that you may remain a company director during your IVA, and it will not affect your employment status, for professions such as Law, Accounting, Financial Services or Medicine, in the same detrimental way that a bankruptcy would.

My preference is to use an informal arrangement such as a debt management plan, with a view to make offers to settle your debts after 12-18 months. This will not have a drastic effect on your credit rating, and can see you reduce your monthly payments to a figure that you can afford, then if you can secure a lump sum from somewhere, you can use this to settle the debts and be debt free in just a year.

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When preparing a budget, it is absolutely essential that you account for every last item of expenditure, no matter how small or insignificant it may seem, as each item of expenditure on the budget will reduce the amount leftover to pay your creditors.

The creditors are somewhat oblidged to accept the payment you offer, as long as you have listed reasonable amounts for all of your items of expenditure.

When I first had to write to my creditors with a budget, I spoke to CCCS about my debts and they went through a budget with me. I remember that I listed my entertainment budget as £200 a month, they quickly informed me that considering the circumstances, this amount was too big and would not be acceptable by my creditors. In the end, I had to put down £20 as a resonable amount, which I believe was within the British Bankers Association guidelines limits.

Please use my debt management budget planner to put together a detailed budget for your household finances. This can be used to then negotiate a reduced payment with your creditors for a period of six months or so, until you are able to get your finances back on track.

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Why? Because, as I understand it, they are a charity which receives a lot of their funding from the major banks. Thus there agenda is no doubt influenced by the agenda of the banks which indirctly help to finance them.

It’s no wonder that with the CCCS they will not, in my experience, setup a debt management plan unless the payment is equal to or more than 1% of the outstanding balance of the debt.

You can of course setup your own debt management plan with your creditors, and here’s how to do it.

Keep your creditors informed

Write to all of your creditors informing them that you are currently experiencing financial difficulties and need to agree a reduced payment for the next six months.

You should include with this letter a full budget of your income and outgoings, accrue within this budget for yearly costs such as car insurance, dental/optometric costs, car servicing, road tax etc.

Allocate your payments in proportion to each creditors debt

Once you have produced a monthly budget, allocate the remaining income to your creditors in proportion with the amount of debt you owe each one.

For instance, if you have £100 a month to be split between two creditors, and creditor A is owed £1,000, and creditor B is owed £9,000, you should pay creditor A £10 a month and creditor B £90 a month.

To work this out, simply add the total amount debts owed together (£1,000 + £9,000) and then divide by each individual debt to get the proportion to be paid to each.

Creditor A: £1,000/£10,000 = 0.1

Creditor B: £9,000/£10,000 = 0.9

Then use this to multiply against the monthly surplus to give a figure for each creditor.

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My story is that I am in the process of writing off my debts as we speak. So far I have agree full and final settlements with two of my eight creditors.

The total amount of debt for these two creditors was in the region of £7,000 and I was able to settle for £2,000 – that’s 28.5% of the balance outstanding!

I have a further six creditors to go, hoping that I can settle with them for a similar, maybe even smaller percentage, will post my settlment figures on here for inspiration, along with guides on what to do to agree settlements with your creditors.

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