Setting up a debt repayment plan can be a convenient solution for people seeking an informal arrangement to handle their debt. However, quite often these plans must be agreed within strict parameters including the amount, date and frequency of each payment.
Although the purpose of a debt repayment plan is to pay off the total balance owed in smaller more manageable instalments, this does not always result in a simple solution for customers. Many lenders and collectors are currently constrained by inflexible systems and procedures which may make it difficult to adapt when something goes wrong.
Most commonly, when a customer enters a plan they agree to a fixed amount at a fixed frequency (usually monthly). Theoretically this sounds like a straightforward solution, though people’s financial lives can be complicated. We only need to look at the most common reasons that people find themselves struggling with debt to understand just how volatile cashflows can be. According to leading debt advice charity StepChange, unemployment or redundancy and a reduction in income and/or benefits are the top two reasons people fall into debt. This is followed by a lack of control over one’s finances, and an injury or health issue that has affected one’s ability to work. Given that the most common reasons for falling into debt include unpredictable events, companies should be prepared for when customers are similarly affected once they enter a payment arrangement.
Furthermore, even if an individual does not experience any significant financial changes, they may still be affected by the rigid processes employed by lenders and collectors. Those on benefits, and even those receiving a fixed amount each month, often have a variable payday and may receive their main source of income on a fortnightly or weekly basis. In addition, the number of self-employed people has increased significantly since 2000; over 5 million people were self-employed in 2019 and 1 in 10 people were reported to be working in the gig economy in the same year. For the many people living off a variable income, committing to the same pay date or same payment amount each month can be particularly challenging.
As a result, it is no surprise that we see so many missed payments and broken plans. As few as two missed payments can lead to the cancellation of an arrangement, often resulting in resumed contact with the customer or continued collections activity. Although clients can be accorded holds on their accounts these usually only last for a period of 30 days at a time, and some lenders are more lenient than others in affording multiple holds. This can cause problems, not only by adding more stress to what is already a difficult situation for customers, but also in the heavy operational burden for companies who need to contact them and set up new plans.
It is therefore increasingly important for companies to invest in new systems and build out robust procedures to make plans more flexible. Debt management companies such as Tully already offer the ability to flex payments when a customer experiences a difficult month, but it is clear that the industry in general still needs to catch up. Updating long-reigning yet rigid processes could give many people a better chance of maintaining an arrangement for longer and becoming debt-free. This will do a great deal to increase customer satisfaction and reduce the weight of operational cost.
At Ophelos we understand that everybody's financial situation is different, so we strive to offer as much flexibility around repayment plans as possible.
If you're interested in learning more about our repayment plans, why not get a demo?