How Are Debt Relief Strategies Changing?

Rising living costs and stagnating wages are driving more people into deep debt. However, debt relief is evolving. Regulators have been pushing for fairness, while providers have been adopting automation to lower costs and expand access. This has led to many changes in the way debt relief is now handled. Below are just a few examples of these changes. 

Increased reliance of debt management plans

DMPs are gaining traction as an alternative to settlements. They work out better for both debtors and creditors – whereas a settlement involves negotiating a reduced sum to pay back and can cause severe credit harm to the debtor, a debt management plan involves paying back the whole sum but in smaller instalments (often by negotiating lower interest rates) and has less harm to one’s credit score. Previously few people were eligible for debt management plans, but now more debtors are being considered.

Human-centric design

Relief programs are also adapting to be more human-centric. As debt experts like Alex Kleyner explain: ‘the current system often treats debt as a math problem, but it’s really a life problem. People need to feel that their circumstances, goals, and dignity are part of the solution’. By acting as both counsellors and financial advisors, debt relief services can help put those in debt at ease so that they are more motivated to take the right steps to settle their debt. In turn, such an approach can encourage debtors to get financial help earlier while also potentially preventing mental health problems from taking hold. 

Greater transparency

In the past, there have been many cases of predatory debt relief systems that aim to exploit those already in financial trouble, but increasing regulations have been pushing for transparency to prevent this. Providers now emphasize plain language disclosures, standardized fee schedules and outcome tracking to make sure debtors are fully aware of what they are paying from the onset. This encourages more debtors to seek out debt relief support by creating trust. 

Reduced administration fees

Administration fees are also being driven down by regulation, automation and competition. It’s now more common to see capped enrolment charges and subscription-style pricing with low instalments. In countries like the UK, admin fees for debt relief orders have even been scrapped. This has helped to make debt relief more accessible to those who need it the most. 

Debt forgiveness 

We’ve also been seeing an increase in debt forgiveness in recent years for those undergoing hardship. There have been many cases of this happening in regards to medical debt and utilities. Typically, such hardship needs to be documented and must be severe enough for creditors to agree that it is worthy of forgiveness. Meanwhile, governments around the world have also been exploring debt forgiveness for certain types of debt in recent years. The most famous example of this was a major student debt forgiveness plan proposed by President Biden in 2022, however this has since been blocked. Other countries have meanwhile brought in laws to help forgive limited amounts of energy bill arrears.

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