Learn what to watch out for to avoid unauthorised or unsuitable debt advice and the steps you should take if you're considering a debt management solution.
If you're struggling with money, you can get guidance on dealing with debt from MoneyHelper[1]. You can also use the Debt Advice Locator tool[2] to find free services in your area.
Following the rise in the cost of living, more people in debt are being targeted online and on social media with promotions on how to get out of debt.
But if your adviser isn't authorised to give you debt advice, you could end up being offered poor advice that's not suitable for your circumstances.
How some debt products are advertised
Promotions may mention using debt products to reduce or write off your debt, such as:
- individual voluntary arrangements (IVAs)
- trust deeds (Scotland)
- debt management plans
- debt relief orders
- bankruptcy
If you're in financial difficulty, you can use an IVA to come to a formal agreement to pay your lenders. IVAs, in particular, are advertised as a product that will allow you to write off large amounts of debt.
But ads that direct people to websites or social media accounts offering IVAs don’t always make it clear that large fees are involved. They sometimes make misleading claims about how much debt you can write off or say they are a 'government backed solution'.
These ads tend to be made by firms looking to get your information to pass on to authorised debt advisers. These firms are known as lead generators. They may not consider your best interests and may push you towards certain products, such as IVAs, because they’re being paid to do so.
You may see these firms appear in the top search results online when searching for debt advice, or individuals appearing in ads on social media. Some may even impersonate debt advice charities to come across as genuine.
It's often unclear from these ads who you’re dealing with and whether they're qualified or authorised.
Who can give debt advice
Firms who give debt advice must be authorised by us and follow our rules. Individuals who arrange IVAs, known as insolvency practitioners, also need to be licensed to advise on and administer IVAs.
Any advice given by a firm that isn’t authorised may be wrong, misleading or not in your best interests. You won’t have access to the Financial Ombudsman Scheme[3] if you want to complain.
Make sure you know who you're talking to
-
1
If you fill in a questionnaire via social media, it will generally come from a lead generator. These firms should only take basic information about your debts and provide factual information about products. They are not authorised to provide debt advice. They should point you in the direction of someone authorised or licensed to give you advice.
You should not be coached into giving certain answers, such as misrepresenting your income and expenditure, to enable you to qualify for an IVA or a trust deed.
-
2
Always check our Financial Services Register[4] to make sure the person or firm you're dealing with is authorised and has our permission for the services it's offering you.
Authorised debt advisers, or licensed insolvency practitioners, shouldn't push one option to deal with debt or try to stop you from considering other options. They may give you a recommendation, but they should always give you choices to help you make informed decisions.
-
3
If the adviser suggests an IVA or trust deed is appropriate and directs you to an insolvency practitioner, make sure you check the practitioner is licensed[5].
You can check our Warning List[6] to find details of firms and individuals running scams or operating without being authorised.
What to know if you're considering an IVA or trust deed
An IVA or a trust deed is an agreement between you and those you owe money to (your creditors).
If the only solution you've been presented is an IVA or trust deed, and you've dealt with an unauthorised or unlicensed introducer, then you can use the Debt Advice Locator tool[2] to find free services to check it's the right solution for you.
- You’ll have to pay fees for an IVA or trust deed to be set up and managed and this often costs several thousand pounds. These fees will usually be taken as part of your monthly payment for your IVA or trust deed
- It allows you to make monthly repayments against your unsecured debts, typically over 60 or 72 months for an IVA and over 48 months for a trust deed.
- At the end of your IVA or Trust Deed, any debts that you have not repaid in full, will be written off.
- Both solutions are set up by insolvency practitioners.
- An IVA is unlikely to be a suitable solution if your income is solely made up of benefits or a state pension. You can’t set up a trust deed if your income is made up of only benefits.
- If you don’t complete your IVA or trust deed, then your remaining debts won’t be written off. You'll have to pay the full amount owed (after any payments you’ve already made to your lenders have been deducted from the balance) plus any interest and fees that were frozen during the period. Fees are often paid at the start of the agreement. This means that if it fails early on, you may already have paid fees, and the balance you owe may only be slightly smaller than at the start.
Managing your finances
If you're struggling with your finances, there are free sources of independent and unbiased debt advice that can support you.
You can find out more about the best ways to pay off your debts in England and Wales[7], Northern Ireland[8], and Scotland[9], from MoneyHelper.
