The weight of managing debt alone can be crushing and constant telephone calls and increasingly urgent demands for payment can be difficult to escape.
However, although it can feel very isolating, there are many different debt solutions available, which could help you overcome your debts sooner than you think.
Many people believe that bankruptcy is the only option but, in reality, there are many alternatives available which could help you to avoid some of the more significant long-term consequences.
A Debt Management Plan is an option which many people find suits their needs and involves calculating how much money there is left over once all essential expenditure has been taken into account. Negotiations are made with creditors to secure a lower, more affordable repayment rate and payments are distributed between creditors every month. This may of course mean that debts take longer to repay, but if interest and charges are frozen, you will be able to repay more of your debt in a shorter amount of time.
With a Debt Management Plan, no debts are ever written off and the repayments are due until the total amount has been repaid. This means the duration on a Plan depends on how much money you owe and can afford to pay each month. The flexibility of a Debt Management Plan means that you can increase your repayments when your finances improve and clear your debts in a shorter amount of time.
An Individual Voluntary Arrangement (IVA) is a more formal alternative and is a legally binding contract between you and your creditors. This means that they are not allowed to take legal action against you, providing you are paying the amount specified in the IVA. This can provide you with the comfort of knowing that they cannot petition for your Bankruptcy. They are also not permitted to contact you, giving you freedom from being bombarded by requests for money.
An IVA typically lasts for 5 years and all interest and charges will be frozen. Any debts that still exist at the end of the IVA term will be written off. However, if you are a homeowner, you may have to release equity from your property in the final year of the IVA to repay creditors. You will be told about this before the IVA is drawn up, to enable you to consider whether this is the right option for you.
To qualify for an IVA, you must owe £15,000 or more and have unsecured debts with at least three different creditors.
A Debt Management Plan or an IVA could dramatically reduce the amount you have to pay out every month, breaking the spiral of borrowing more and more money, simply to get by.
It’s important you fully understand the terms of each solution and how they will impact your life. For example you will find it difficult to get credit as your credit rating will be affected in the medium to short term.
Baines & Ernst is a specialist debt company in the UK providing help and advice to people who want to get out of debt through a Debt Management Plan or an IVA. To find out if you qualify, or for a no-obligation financial review, contact Baines and Ernst.