When you seek advice about your debts from an advice agency, it can be a worrying time. It is a big step and understandably people may be worried about doing so. You cannot predict the reaction you will get, and you don’t know if the people you are speaking to will be shocked or disapproving. On top of that, there is the mystery surrounding the debt advice process itself. What does it involve? What happens during it?
This last point can be even more worrying when you consider there are no shortage of examples of people receiving bad advice and, as a result, having their situation made worse. It’s not unheard-of for people seeking advice to be “sold” solutions by firms that confuse their interests with those of their clients. This can make someone’s situation worse.
Understanding the Debt Advice Process
It, therefore, helps to understand what “best practice” is in the debt advice process and how reputable organisations approach the debt problems of their clients.
The first thing to be clear about is advice agencies should never be judgemental and should always advise you on what’s in your best interests, not theirs. If you feel they are doing otherwise, seek advice elsewhere.
Some organisations, also operate different variations of the debt advice process. For some it is a five step process, whilst for other its a six or seven step process, but either way, regardless of the procedural variations, there are certain steps that all organisations should be following.
Armed with knowledge of the Debt Advice Process
ARMED is an acronym that can be used to help you remember what is best practice in debt advice in Scotland. It is a five-step process that covers the main steps that you should ensure are complete before you choose what is the best option for you. If you seek advice from an organisation that doesn’t complete these steps, you should seek alternative advice from another agency.
Acquire all Relevant Information
The first step that any debt adviser should take before advising you on your debts, is to acquire all relevant information about your situation. This includes information not only about your debts, but also your income and expenditure and your living arrangements. This includes whether you own your own home or not, whether you live alone or not and whether you have children. It will also include whether anyone else in your home is working.
The adviser may also ask about your health and whether you are a carer, or about the health of other members of your household. This is because, although other household members aren’t expected to pay off your debts, you or other family members may be entitled to social security benefits. If the financial well-being of other household members can be improved, this may help improve your financial well-being.
Advisers may even ask about other family members, who are not part of your household, such as siblings or parents, as if they were to pass away and you are likely to inherit assets from them, such as a home, this can be relevant in helping you decide what is the best option for you.
Although it may seem many of the questions an adviser asks may appear unrelated to your debt problems, there are usually good reasons for them asking the questions. If you are in doubt why certain information is being sought, you should ask the adviser why it is relevant.
A good adviser should be able to explain why.
Respond to Emergencies
A good adviser should also check if you or other members of your family are facing any emergencies. This may mean facing an eviction or repossession of your home or even the repossession of items you have on hire purchase or conditional sale.
Other types of emergencies may be an imminent threat of legal action or enforcement action by sheriff officers. It could also include the fact you have insufficient income to get through to your next pay day or if creditors are harassing you. Where there are emergencies like these, the adviser should take steps to address them immediately, to ensure you don’t suffer unnecessary harm.
Maximise Income and Minimise Expenditure
The maximisation of someone’s income is a key part of the debt advice process, as is the minimisation of any unnecessary expenditure. This should be done as a matter of course, before someone is advised on any debt option, as otherwise they may receive the wrong advice.
For example, someone may be advised to go bankrupt, when if they had additional income, a less severe option may be appropriate.
Establish a Sustainable Income and Expenditure
Once income is maximised and expenditure minimised, a sustainable income and expenditure should be drafted to establish what it is a client can sustainably pay.
For example, if it is known someone will be retiring in a few years, or that their children will become adults during their solution, and that this will affect their income, then this must be considered when advising the client on their options. If a client is advised they must pay a certain amount for a certain number of years and it is foreseeable that this will not be sustainable, then it will not be best advice to advise that client on that option, without highlighting the risks of failure to them.
Discuss all Viable Options
It is only at this point, stage five in the debt advice process, once all the other steps have been completed, that it is possible to identify what are the viable options open to the client and for these to be discussed with them. These may include both formal and informal debt solutions.
They key point about the debt advice process is to ensure clients receive best advice and that their interests are protected.
Understanding what the debt advice process is, is important. It doesn’t mean you don’t need to seek professional advice, but it does mean you can be an active participant in it and ensure all the necessary steps are completed.