If you are having problems with your debts then you may be at the stage now where you know that you have to do something to get your finances sorted out once and for all. There are actually a lot of different options out there to help you out at the moment. The problem that many people face at this stage is simply not knowing which one will suit them best.
The most common debt management solutions chosen by UK consumers today include:
- Debt consolidation -- many people opt to use a debt consolidation solution to sort out various debts at once. In most cases this will involve taking out a consolidation loan. This may be a stand-alone loan or one that is against your home or taken out from it (i.e. a second mortgage/mortgage extension). You use this money to pay off all of your debts at once. It then leaves you with one single repayment to make every month and you’ll usually find that this will cost you less than servicing all your debts individually.
- Debt management program -- with a debt management program you contact your creditors with a view to coming to a repayment agreement with them. This usually involves your paying back less than you actually have to on paper to relieve the monthly financial pressure of your debt commitments. In many cases you can get creditors to agree to freeze/reduce interest whilst you commit to the program. In some they may even agree to write off some of your debts at the same time. These agreements are not legally binding. You can set up an informal one yourself with one or more of your creditors or you can use a debt management company to do it for you. If you opt for the latter choice then you pay a set amount to the debt manager every month and they divide it amongst your creditors for you.
- IVA (Individual Voluntary Arrangement -- an IVA is a legally binding solution. This option is usually set up to last for a period of 6 years and is set up with the aim of helping you repay some of what you owe with the rest written off when the IVA is finished. You’ll need an Insolvency Practitioner to help you set an IVA up and you’ll need agreement from a percentage of your creditors before you can do so. If your IVA is approved then you pay a set sum every month based on what you can afford which your Insolvency Practitioner will pay to your creditors. They will freeze interest and cannot chase you for money as long as you stick to your agreement. This is often viewed as a good alternative to bankruptcy if you qualify as you will lose fewer possessions and may not have to sell/give up your home during the process.
- Bankruptcy -- you can basically sort out all of your debts with a bankruptcy proceeding in just a year. This is also a legally binding debt management solution. You may find this the most radical option open to you -- your assets, including your home, may well be liquidated to pay back some of what you owe but at the end of your bankruptcy -- which is a relatively short period after all -- you will be debt free. Again, you will need some help from either the Official Receiver or a Trustee to manage your case.
The point is that there are plenty of informal and formal solutions out there for you to choose from. If you are not clear on which option will suit you best then you’d be well advised to talk to a debt management counsellor such as The Citizens Advice Bureau. A counsellor will be able to look at your circumstances and chat through all the options for you. This may well be the best way of deciding the one that will give you the quickest and most effective way of repaying what you owe.