Get rid of debt now
As the recession and economic growth outlook remain bleak the number of corporate bankruptcy and personal bankruptcy petitions is set to rocket over coming months. But this need not necessarily be the case as there are a number of debt management actions that can be taken to get on top of wayward finances at an early stage and before they get out of control. But that does mean changing things since doing nothing is rarely an effective way to manage debt and could ultimately lead to bankruptcy as the only option.
No matter what the cause of the financial problems getting to the bottom of what is spent and where is a good starting point. With inflation far exceeding earnings and key elements, such as food and energy, forming an increasing portion of disposable income spend, a reassessment of the family budget to determine the essential spend versus the discretionary items is a must. Therefore, time must be taken to create a family budget and work out what can be saved and how borrowings may be rearranged to ease cashflow.
Consolidation of debt is one way to help stave off bankruptcy. Debt consolidation loans work by borrowing more money on fixed rate terms over a long period and using the proceeds to pay off existing, expensive debt. Existing debt is usually credit or store card balances where interest rate charges run at nearly 20% APR and loans with high monthly repayments over a short repayment period.
Debt consolidation loans do not reduce the amount of borrowings but restructure it so that it can be paid off over a much longer period. This reduced the monthly payment meaning that pressure on the household budget is reduced so other living costs can be met more easily. Debt consolidation is a great way of restructuring borrowings so as to make them more affordable in the short and medium term.
Even if debt consolidation loans do not work then there are other debt management plan options that could take the pressure off. Whilst changing lifestyle spend may achieve some savings it may be necessary to consider a more formalised arrangement with lenders which can only be put in place for larger balances owed and is a useful and valuable way to avoid bankruptcy.
Of course, all other options such as looking for additional sources of income can also help too! But the biggest change will probably be achieved in the short term by changing spending habits and cutting out unnecessary items such as excessive entertaining, smoking and club memberships. But for those where larger debts are involved there is another option that can be considered called an Individual Voluntary Arrangement (IVA).
Individual Voluntary Arrangements (IVA’s) help those with debts in excess of 15,000 find a way of managing themselves back to financial health over a typical five year period rather than having to consider bankruptcy. IVA’s are formalised debt management plans where lenders’ agree to take a reduced payment for a period of up to five years and then write off any balance unpaid. You will have to work with a licensed insolvency practitioner who will help generate a debt management plan and negotiate a repayment plan with lenders. If they agree, the repayment plan is formalised in a registered legal agreement and the agent will manage the collection of cash from you and payment to lenders as agreed.
Provided you make payments under the IVA as agreed no lender can take any further action against you. However, should you fail to maintain the payments you may be petitioned for bankruptcy and all your personal assets seized and sold to raise cash. If there is a shortfall once all your assets have been sold the terms of a bankruptcy petition means that you will still be liable and can be pursued for payment should your circumstances improve at any time in the future. Bankruptcy also still carries a high level of negative stigma and may restrict you from certain jobs and borrowing facilities in the future.
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