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More Information About Debt Management – Debt Advice – Debt Solutions
If you feel like your debt isn’t manageable, perhaps it’s time to try and regain control. Don’t worry, you aren’t alone. Many thousands of people are in a similar situation. The trick is not to try and forget it’s happening but to face it head on and put a stop to it spiraling even further out of your grasp. Talk it over with someone, don’t keep it to yourself. You know what they say ‘a problem shared is a problem halved’.
As a first step, to help you get a clearer picture of your existing commitments, try making three lists.
1/ Note down all of the people that you owe money to, both on secured and unsecured debt, and how much is currently outstanding, Make an additional note of any arrears that you may have too. For example, in this list, you would need to include your mortgage, equity release loan, bank loans, credit and store cards, hire purchase agreements.
2/ Then, make a separate list of all your monthly incomes such as wages, benefits, pensions etc.
3/ The last list you’ll need one that itemizes of all your outgoings. Make sure you include all your creditors, including any extra payments you are making to clear arrears, food and clothing bills, TV licence, Car Tax and insurance etc. Literally, write down everything you pay out on a monthly basis no matter how large or small the amount is.
Now’s a good time to speak to your creditors to let them know that you’re experiencing problems, they’ll be more sympathetic than you thought. You can tell them that you are considering the debt help options available and that you’ll keep in contact with them should there being a problem paying them.
Don’t despair now you’ve got it all down on paper. It’s a positive step towards re-establishing your financial stability. With the lists of your incomings and outgoings, you’ll be better able to see how much money you have to work with each month. This will make it easier to see which of the debt help solutions would work best for you.
Debt Management
How does it work? In simple terms, working with you, your chosen debt management company will go through your monthly finances and agree a fixed monthly amount that you can afford to spend on all of your outstanding debt. They will then contact all of your creditors to ask that they accept, most likely, a reduced fixed monthly payment. They’ll also ask that any interest charges are stopped.
Pros. You’ll know exactly how much you have to pay out each month. The telephone ringing and the postman arriving will no longer fill you with dread, as your debt management company will liaise with all of your creditors for you. The arrangements are regularly reviewed meaning that if your circumstances change, the arrangements can be amended to reflect a wage increase enabling to clear your debt quicker. Any agreements made through a debt management plan would not be legally binding.
Cons. Some debt management companies charge a monthly fee for their services. So, out of your monthly payment to them of say £200, they may take £25 to cover their costs, meaning less of your money is being used to clear your debt. Some of your creditors may not agree to the reduced payment and some may continue to add interest resulting in you accruing more debt in the long run. Your credit rating may be affected by an arrangement of this nature.
Debt Consolidation
How does it work? A debt consolidation loan would be used to clear all or some of this outstanding debt. A loan of this nature is more often than not secured against your property. It’s worth considering that this type of loan works best if you intend to clear your debt and not apply for any further credit.
Pros. You’ll only have one monthly payment to make which will most likely be far less than you paid out on all your individual loans and credit cards together.
Cons. A debt consolidation is usually taken out over a longer term, over say 10 to 20 years. This will mean that you will probably pay back far more in the longer run. It won’t help if you keep using credit facilities and run up more debt.
IVA - Individual Voluntary Arrangement
How does it work? This is a formal agreement between you and your creditors. Generally, your debts will need to exceed £15,000 and will be split between at least 3 different creditors for you to qualify. With the help of an insolvency practitioner your creditors will be approached to agree the IVA proposal. You’ll pay a fixed monthly amount that will be spread proportionally amongst your creditors. The arrangement usually lasts for 60 months and at the end your remaining debt would written off.
Pros. You’ll make a single monthly payment with no further interest or late payment charges added. Your creditors will not contact you by telephone or letter. After a maximum of five years, you’ll be debt free. Your credit file would not be damaged for life, once the agreement has finished, you would be able to rebuild your credit status. An IVA is a private arrangement between you and your creditors, it will not be made public.
Cons. You have to have a minimum amount of debt to qualify. It’d be a legally binding contract, so you won’t be able to change your mind during the arrangement. During the agreement, you won’t be able to accrue any further unsecured debt. It’s possible, if you’ve equity in your home that you’ll be expect to release some or all of it to help clear your debt.
Bankruptcy
How does it work? This is a legal agreement where it’s declared that you cannot afford to pay your debts. Sometimes bankruptcy can be requested by your creditors to recoup their money but most frequently it’s initiated by the bankrupt individual or organization. In bankruptcy, any assets that you may have, such as your home, are realized to pay off your creditors.
Pros. The process is managed by a third party so you no longer have to liaise with your debtors. On average, the period where you will be classed as a bankrupt is one year, after this period you’d be discharged from the bankruptcy. Once you’ve been discharged, any outstanding debts are written off. It’s likely that you’ll pay back less to your creditors than you would with an IVA.
Cons. Bankruptcy will result in long term financial consequences, you’ll find it difficult to secure any financial services such as bank accounts, loans, mortgages or credit cards for a prolonged period. You’ll loose your home and any assets that you have to fund payment of your creditors. Not all debts can be written off. Bankruptcy is a matter of public record, notices of bankruptcy are published in local/national newspapers. Charges for administering the bankruptcy can be high and are payable by you the debtor.
From the information above, you can see that there are many options open to you, not all of them will be suitable for your situation, but don’t fret, there is help out there. Before you consider any of the debt help solutions available, it’s strongly recommended that you consider the carefully the pros and cons. Ideally, seek independent advice. There are plenty of sources of help and advice, many of them free.
Why not use make use of internet search engines? Search by key words such as debt help, IVA, debt management etc. You’ll be presented with numerous valuable sources of information.
Alternatively, if you’d prefer to speak with someone in person, contact your local Citizen’s Advice Bureau to arrange an appointment, their number will be in your local telephone directory or you can take a look at their website www.citizensadvice.org.uk
If you’d prefer the anonymity of a telephone call, look in your local telephone directory under Debt Help and Advice. There are many national phone based services that will be able to give you free and impartial advice, including:
National Debtline, tel: 0808 808 4000 or visit www.nationaldebtline.co.uk
Consumer Credit Counselling Service, tel: 0800 138 1111 or visit www.cccs.co.uk
The UK Insolvency Helpline, tel: 0800 074 6918 or visit www.insolvencyhelpline.co.uk
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