Monzo University on debt advice and how to choose reliable sources

Getting into debt and finding debt advice can be scary and confusing, but it shouldn't be. Here Stuart McFadden, Monzo’s Head of Financial Difficulties, explores the world of debt advice agencies and explains how to get good advice.

Many of us will face financial difficulties at some point in our lives. Circumstances change: people lose their jobs, go through periods of ill health or simply borrow more than they can afford to pay back.

Whatever the reason that someone ends up in financial difficulties, they should never be ashamed or embarrassed about it. A report by Citizens Advice in 2016 estimated that 5% of the adult population has debt amounting to 6 months or more of their salary, but unfortunately it’s still something that people are not open about and generally keep to themselves.

Often, all but the most complex and tricky debt situations can be much easier to resolve than people realise. Those in debt need to get the right advice and they need to be given enough detail about all the solutions and options available. There is a lot of extremely poor debt advice out there and so it’s important to find the right advice.

Where to get good, free debt advice?

The Money Advice Service has a great tool for finding free advice agencies which can be found here. In general, the most suitable place to get advice depends on your needs. All the services below operate a phone line and online services, but some are best suited to customers with certain needs.

For phone advice

For ease of access and if you like to speak on the phone you may wish to speak to one of the following (largely phone based) services;

Stepchange Debt Advice Charity: Stepchange’s Head Office is in Leeds and it is a largely phone based charity, with some online and self-help tools. It was set up in 1992 and was originally called the ‘Consumer Credit Counselling Service’, but rebranded in 2012.

For digital and phone advice

Payplan: Based in Grantham, Payplan are another free to customer advice agency where you can get advice over the phone or online. If you are Scottish, you should contact Payplan Scotland.

For face to face advice;

There are a lot of resources available and it depends on the area you live in. Again; the Money Advice Service tool here can show services near you. One large organisation is Citizens Advice, for Scotland Citizens Advice Scotland and for Northern Ireland Citizens Advice Northern Ireland.

Citizens Advice is the umbrella network for the Citizens Advice Bureaux. Bureaux have been at the centre of their communities since 1939 and provide advice and assistance in anything from debt to disputes with neighbours. Unfortunately Bureaux can be stretched due to funding cuts as they largely rely on local government funding. So get in early to ensure you see an advisor, as sometimes the queues at the busiest bureaux mean that some people won’t get seen.

Specific personal or circumstantial needs;

Turn2Us or AdviceUK are good places to go to for niche services or if you have specific needs. Fill in the details to find agencies near you and it includes all the large agencies as well as niche services for example, advice for specific communities, single parents or victims of domestic abuse.

Debt advice agencies — in detail

Fee vs Free

There are two types of organisations that can give debt advice — profit making companies that will charge you; or free advice agencies that don’t charge you.

What’s the difference between advice from profit making agencies and free advice from organisations such as Stepchange or Citizens Advice Bureau?

The most comprehensive review into the debt advice sector was the Financial Conduct Authority's Thematic Review into the quality of debt advice in the UK in 2015. They found that, generally, advice from ‘free’ debt management firms was better than advice from companies that charged a fee.

“The quality of advice provided by the fee-charging debt management firms in our sample was of an unacceptably low standard.”
“Advice provided by the ‘free to customer’ debt management firms in our sample was generally of a higher standard.”

As part of their review, the FCA sampled cases from a number of agencies, both free and fee-charging. They assessed how likely the advice given was ‘high risk’, including where the advice given by the debt advice agency was not in the customer’s best interests or the recommended solution was potentially unaffordable or unsustainable. The FCA found that;

“Approximately 60% of the fee-charging cases we reviewed were assessed as posing a high risk of harm to customers – compared to 20% from the free-to-customer firms.”

This is important because each person needs to be given individually tailored advice and there are a number of solutions out there.

The FCA report found that often firms were not giving enough information on the available solutions or not challenging customers’ misconceptions. To not explore these options during the advice process can be a betrayal to customers. It’s not easy to explain why so I will pull an example from the FCA review into debt advice to illustrate a point.

A customer approached a firm to seek help with their debts of approximately £9,000. The firm calculated the customer’s disposable income using standardised figures for items such as food, clothing, mobile phone and insurance. This resulted in a disposable income of £253.

The customer subsequently amended the income and expenditure statement (sent to the customer after the initial telephone call) to reflect their actual expenditure. The changes resulted in the customer’s disposable income reducing to a negative figure. The firm then called the customer to inform them that the disposable income had to meet their minimum amount. The firm said they would change the figures to fit this, and did so, without any discussion with the customer about their ability to commit to such a significantly reduced budget.

Firms are obliged to carry out a comprehensive income and expenditure assessment and shouldn’t therefore use standard figures, because everybody’s expenditure isn’t the same.

For many fee paying firms a customer needs to have enough disposable income after taking into account essential expenditure to make it worth it for the firm to help them — usually the minimum amount needed is between £50 and £100. In this example, a customer who had no disposable income was then unable to afford to go onto the firm’s ‘debt management plan’. Assuming the customer was able to go onto the plan and miraculously rustle up the ‘higher minimum’ of £100 it would take them 7.5 years to pay off the debt without even taking into account the firm’s fees.

Now consider that one of the key requirements for a Debt Relief Order is that you need a disposable income of less than £50 to qualify. This customer was eligible in this regard if a correct assessment of their income and expenditure took place. Assuming the requirements were met, the customer looks likely to have been eligible for a Debt Relief Order which means that for a fee of £90 the customer could have had protection from creditors for a year (including not having to make payments) and then had all £9000 written off.

Although it’s not definite that the customer was eligible in this exact case, it still stands that it in these situations it’s easy to brush off a Debt Relief Order and fail to explore it on the basis that ‘your disposable income is too high’. Those in debt are under pressure and trust the advisers know best.

Don’t trust reviews

Debt advice is a complicated world and very few people fully understand it. The FCA put debt advice and high-cost-short-term-credit, like payday loans, as two of the highest risk areas when it took over regulation of consumer credit in 2014. But payday lending got all the press - simply because it’s easier to understand and it’s clearly outrageous to charge over 7000% interest, although failure to get the right debt advice can result in a much more harmful outcome for the customer.

Customers who are over-indebted are often in a vulnerable position and an easy way to deal with debt is to pretend it’s not there. The best way to do this is to get someone else to deal with it and stop the phone calls and letters. So, customers are often very happy with the service they get from debt advice agencies because, quite simply, it’s been a relief, psychologically, for them to get someone else to deal with it. But it’s also because they have no idea how poor the advice given to them can be. Nevertheless, there is some great advice out there and I set out where to find them above.

Be careful when searching

Charities cannot compete on the same level as fee paid firms for paid advertising or search engine optimisation, so it can be easy to get a distorted view of the market.

Instead of using Google, we recommend using the resources detailed at the top of this article.

Are you Scottish or do you live in Scotland?

If you are on a Debt Management Plan and not a Debt Arrangement Scheme, the chances are you have been given poor advice. The latter is usually the best option, as you are guaranteed a freeze on interest and charges and protection from legal action. Whereas you are not guaranteed this in a Debt Management Plan.

You should explore all the options available to you because they will be different depending on whether you live in England or Scotland. Look into things like Trust Deeds, Debt Arrangement Schemes and the Minimal Asset Process if you are Scottish.

Question advice and challenge your own misconceptions

The way debt is reported on TV is often very different to reality. Shows will make out that the first port of call is for bailiffs to start coming round with nothing you can do to stop them; whereas in reality a court order is usually required before the bailiffs are called (except for unpaid income tax, national insurance or VAT). Citizens Advice have a great resource for learning more about bailiffs and your rights.

Also when receiving advice make sure that you understand exactly why you have been recommended the course of action you are taking and why the others weren’t appropriate. For example, don’t accept someone telling you that a Debt Relief Order isn’t available because your disposable income is too high when they haven’t carried out a proper assessment.


Don’t be afraid to ask questions, whatever your situation. The most important thing to remember is to be part of the battle against your own debts and understand exactly why you have chosen the route they have. It is vitally important to understand your own situation and the time-frames involved for when you will become debt-free.

Stuart McFadden
Head of Financial Difficulties, Monzo

And that's it for this installment from Monzo University! We'll continue to improve this and all of our other guides over time. Let us know what other guides you'd like to see from us and how we can improve this one. Thanks for reading!