A Breakdown Of Possible Debt Solutions

With the poor state of the UK economy and the cost of living increasing on a daily basis, increasing numbers of people are struggling to pay their way and maintain regular payments on their debts. Having to borrow from Peter to repay Paul, and not knowing how you will meet your repayments from month to month, not only causes financial problems but can also be damaging to you health. Once you are caught in the downward spiral it is almost impossible to break free from it. The purpose of this article is to identify what choices are open to people who find themselves in trouble with their finances.

Debt consolidation: consolidation can seriously reduce your monthly budget and help get your finances back on track. Instead of having to fork out for several different loans and credit cards every month you take advantage of a larger loan and pay off all your outstanding debts, leaving you with one less expensive repayment to find each month. This not only results in more cash in your pocket every month it also alleviates all the anxiety that comes with it. Also by taking advantage of this option your credit rating will not be adversely affected, in fact so long as you maintain regular repayments it will increase your credit score.

Debt management: when you sign up for a debt management programme with a debt management provider, they will attempt to instigate a minimised payment plan with all your lenders on your behalf. They will also ask them to freeze charges and any interest you are incurring, although they are not obliged to comply if they choose not to. You will then pay one payment each month to the debt management company and they will make your repayments at the agreed amount. This eradicates all the hassle of having to deal with the companies you owe money to yourself as all communication will now go through your advisor. Most debt management providers will charge you a fee and taking advantage of a debt management programme will have an adverse effect on your credit score.

Individual voluntary arrangement (IVA): Taking advantage of an IVA is similar to a using a debt management plan apart from the fact that an IVA is a legally binding document and so long as you get a majority vote from your creditors they all have to accept the agreement (75% by monetary value). The IVA is drawn up and managed by an Insolvency Practitioner (IP). All addintional charges will be stopped and a reduction of your outstanding debt will be negotiated, as much as 70% will possibly be wiped out. The agreement will normally run for five years and you may well have to remortgage your property to pay off any remaining debt on its expiry. You will be charged a fee by the IP and entering into an IVA will have an impact on your credit score.

Bankruptcy: registering as bankrupt is by far the most radical step that anybody can take, and may well end up in you losing your home. It will also have a lasting impact on your credit score.

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