Debt levels in the UK are getting higher and higher. An increasing number of people are finding it a real struggle to keep up with repayments on their unsecured loans, credit cards and other miscellaneous debts.
The main problem is that a lot of people find it easier to stick their heads in the sand while their debts increase which obviously makes the problem worse. It’s clear that those of us who run into debt are unclear about the options available and luckily there is a good range of debt help options depending on your financial situation.
If you are struggling with a number of debts and part of the debt is a secured loan then you must continue to pay off this loan as it secured against your home. Non-payment of such loans could result in you losing your home.
Once you have established the full extent of your debts you can take a number of steps to get all your debt under control. One of the fastest and most efficient ways to clear your debt is to get in touch with a debt counsellor. And you don’t necessarily have to pay for that help. They will be able to sit down with you and go through all the debt help options available, depending on the amount of debt you have.
The first stop the counsellor will suggest is to write to all your creditors with a proposal to accept lower payments each month. Some of the creditors may not be happy with this and will refuse immediately whereas other maybe more flexible depending on your level of debt. In order to get the maximum amount of creditors to agree you will need to offer a reasonable and realistic sum of money each month. Although you could end up paying less each month it doesn’t necessarily mean you end up paying less. It could be that you end up paying off the debt over a longer period of time.
Another option similar to the above is the Debt management Plan. With this option your counsellor will once again draw up a contract for your creditors to agree on. The amount you pay into the plan is based upon your disposable income on a pro-rata basis depending on how much you owe each creditor. A single monthly payment is then made to the counsellor and this is then distributed amongst each of the creditors. With this type of plan the benefit is the counsellor can normally get the creditors to stop any additional interest charges keeping the debt to a minimum.
If your debts are over 15,000 the counsellor may well suggest an IVA. The Individual Voluntary Arrangement is a government backed debt help solution, which has become very popular in recent years. The IVA can help to reduce your debts by up to 75% and all your debts can be cleared off over a 5 year period. Once again the IVA needs agreement from your creditors and has become a viable alternative to bankruptcy.
Paul Hockney is an online debt expert who provides IVA Company advice.
November 21st, 2007
Consumers are carrying record levels of personal debt, with millions of us owing more money than would be conceivable even just a generation ago. A long period of historically low interest rates combined with surging property prices have led to a distinct change in attitude towards borrowing money, with it almost becoming a way of life rather than a last resort for the majority of people.
While interest rates remain low and economic prospects rosy, most experts accept that the levels of debt we’ve burdened ourselves with are sustainable, if not advisable. However, recent changes in the economic outlook mean that the picture could be about to change. Lenders are becoming increasingly nervous about the effects of the ‘credit crunch’ and are beginning to hike up the interest rates they’re charging on both secured and unsecured credit. Combine this with an expected fall in house prices, and it’s easy to see that for many people debt could easily become a very real problem that needs an urgent solution.
For some people affected by this, the problems could be solved by a simple reordering of their finances such as debt consolidation or even just sticking to a more austere budget and lifestyle. For others less fortunate, their debt burden may propel them down the unhappy route of court proceedings, bailiffs, home loss and even ultimately bankruptcy.
For a lot of people though with problem debt, there is a middle ground strategy that could see your debts serviced and eventually cleared without the trauma of losing your home or being forced into insolvency, and that strategy is known as debt management.
The basic premise behind debt management is that your creditors would rather receive something than nothing. If they force you into bankruptcy, they may be at the back of a long queue of creditors and might be forced to write the debt off. Obviously, this would be a poor outcome from their point of view, and so most creditors are willing to discuss ways of preventing the situation getting to that extreme stage.
After drawing up a realistic budget and working out how much you can afford to put towards repaying your debt each month, you write letters to your creditors explaining the situation and offering to make a fixed repayment each month, even if this is smaller than the amount you’re normally asked to pay. You can also ask that any interest charges or other fees are reduced, stopped, or even refunded, although your success on this point will vary.
In most cases, you’ll find that your creditors are willing to come to some sort of arrangement, and if you stick to this then no further action will be taken against you.
The biggest problem with this kind of strategy is that it can be extremely stressful, and people already racked with debt worries will probably find the prospect of negotiating with their creditors rather daunting. This is where debt management agencies come in. For a small fee, they will take over the handling of all the negotiations and even repayments - you will pay the agency what you can afford, and they will distribute it among your creditors according to the arrangements they’ve made on your behalf. Not only do agencies remove a lot of the stress, they are also experienced in these negotiations and are far more likely to arrange a better deal than you are yourself.
If debt management sounds suitable for your current debt problems, then by all means contact a management agency or a charity who may take on the work for free, but one important thing must be borne in mind: your credit rating will be very severely damaged, with effects that can reach years into your future, and so entering a debt management program should not be taken lightly.
Martin writes on debt management and other debt handling options such as IVA or consolidation
November 21st, 2007
