Four ways to help you get out of Debt | Debt Management

The United Kingdom personal debt today stands at £1,458 billion and the government intend to increase their debt to £175 billion this year and similar figures for the next three years. The latest figures available from Credit Action this month suggests that the average household debt is £59,765 including mortgages, £1.02 billion will be spent on credit card purchases today and £199 million will be paid in interest each day.

If you feel you are burdened with massive debts and finance problems then just consider these daunting statistics. Every ten minutes a home or property is repossessed and an average thirteen people are declared bankrupt every hour of the day. The government have even resorted to printing money to help their problems and 10.3 million British adults, have been hit so badly by the economic downturn that they are relying on their credit cards and other borrowings to help pay for there everyday living expenses. According to Post Office research they expect 2.6 million people are planning to spend more on their credit cards this year than they did last year in order to make ends meet.

What options are available if you are debt stricken?

There are currently four different ways to get out of debt.  Each solution is designed to help people with different circumstances to repay their debts. They are:-

Debt Consolidation

If you have several debts like credit cards, personal loans, overdrafts, etc. Then you could arrange a personal unsecured loan that would allow you to repay the debt back over one to seven year. Alternatively you could choose to remortgage your home in an effort to spread your repayments over a longer period. This would bring down the monthly cost but you would pay more for the debt over the term of the new mortgage. Always think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage.  Be certain that you can afford the new monthly repayments. If you cannot afford the repayments than one of the other debt solutions may be more suitable to your needs.

Debt Management Plan

This is an informal agreement between you and your creditors. Your creditors are the companies that you owe money to like a personal unsecured loan, car loans, credit cards, store cards, overdrafts, etc. A statement of account is drawn up detailing your income and expenditures like mortgage payments, gas, electricity, food, council tax, etc. This identifies the money you have left after you have paid all your bills to pay all your creditors. This can be arranged by yourself or you may choose one of the debt Management charity or the services of Debt Management Company. It is possible to have the interest rate frozen along with any other charges.

Individual Voluntary Arrangement or better known as an IVA

If you have accumulated unsecured debts of more than £15,000 and you are unable to meet your commitments to your creditors to repay the money you owe them. An Individual Voluntary Arrangement (IVA) is a legally-binding agreement which is administered by an IVA practioner and agreed between you and your creditors. A realistic monthly contribution is agreed that is based on your ability to repay. The IVA agreement will last for a pre-determined length of time which is usually five years.

In order to proceed with an IVA agreement you will need at least 75% of your creditors to agree to your proposal for it to go ahead. At the end of that period any outstanding debt remaining will be written off and you will be debt free. You should be aware that if you are a homeowner you may be required by your creditors to release some of the equity in your home to help settle your IVA.

The benefits of an IVA are the potential to write off a percentage of your overall debt; it will safeguard your home and your car; it will alleviate the day-to-day pressure from your creditors and it will help you avoid bankruptcy as long as you keep up the payments

Bankruptcy

Involves being declared bankrupt by a court of law for a period of 12 months, you are not allowed a bank account, and you could find yourself paying your creditors for the next three years before the full debt is written off. Your bankruptcy will remain on your credit file for the follow 6 years and some lenders in the future may still penalise you for many more years. You will be able to keep most of your household goods, your car for work as long as it costs around the £1,500 and you will lose your home and any equity in your home.

Bankruptcy could be the right solution if you have little to lose, you cannot afford to pay back your debts, you live in rented accommodation, possibly not paid a very high salary and you don’t have lots of very valuable assets. Then bankruptcy is a drastic way to get out of debt.  The alternative solutions are a debt consolidation loan, an individual voluntary arrangements or IVA.  Both an IVA and a Bankruptcy are considered as insolvencies by creditors and your credit rating will be affected for the next 6 years.