How to get rid of your debts
The recession is still a very present reality for the economy. Since America’s sub-prime lending activities leading to a wave of home loan defaults, the banks hovering on collapse and personal debts reaching new heights – consumers have struggled with debt. Many are dealing with the toxic fallout from a combination of low interest rates on savings, high debt repayment interest rates, bankruptcy and escalating unemployment.
At one time, bankruptcy in particular was seen as a last resort and carried great social stigma. In more recent years – particularly as more people entered bankruptcy voluntarily, public perceptions have changed. There has also been a real increase in the number of high street agencies offering debt management, debt consolidation and bankruptcy services. Some of these are private ventures; others are publicly funded.
Certainly in the recent past, bankruptcy was seen as a shameful final option, with real social stigma attached. Recently however, public perception has moved on. This has combined with a flood of high street businesses and agencies offering a raft of debt management solutions to those who are struggling – including debt consolidation, debt management and bankruptcy services. Some are public bodies, others private ventures. For those seeking help, it’s vital to find a reputable advice source. Some debt consolidation and debt management agencies charge high fees and may be less than scrupulous, if they’re activities are unregulated. In worst cases, customers may find themselves tied to equally expensive, if restructured, debt repayment plans. Indicators of a good agency will include recommendations, accreditations, Chamber of Commerce membership or other associations. The Citizens Advice Bureau is also a good information source.
A reputable professional debt advisor will assess client applications by assessing their individual circumstances and building a clear picture of the problem. Several solutions are usually available to tackle debt. Bankruptcy can be the best solution for some – it offers the benefit of entirely removing debts once the bankruptcy scheme’s discharged and takes away the chance of being contacted by creditors. Those engaging with bankruptcy for the first time will find their liability can be discharged within as little as a year and, if they rent their property, they won’t lose it. However, those with high value assets such as a house or car will lose control – or even possession – of these assets and they must declare their bankruptcy status when applying for work or new credit. Bankruptcy is a public scheme, which must be advertised locally by law and certain professions will be closed to those who become bankrupt. These include finance, accountancy, solicitors and public services – and the status will limit too company board representation and the ability to create new businesses.
IVAs are a popular debt management scheme, but again have pros and cons. An IVA will fix a client’s debts and consolidate them into a single affordable sum each month, based on personal circumstances. The IVA is managed by a professional practitioner and will be fixed over five years. Repayments begin at around 250 monthly. Once the scheme is cleared, remaining debts – of up to 75% – are discharged and the client is left debt-free.
Debt management schemes such as IVAs are strong alternatives, but again with pros and cons. Essentially, an IVA allows a client to consolidate debts into a pre-agreed and affordable repayment sum each month, based on their budget and circumstances. The IVA is usually fixed over five years and repayments can be from around 250 a month. After the period is completed, any remaining debts are cleared (up to 75%) and the customer is debt free. Advantages of an IVA are that interest owed to creditors is fixed, the overall amount owed and repaid is cut, creditors are prevented from taking legal action against the customer and unlike a bankruptcy, it’s a private agreement and not publicly advertised. This also means that it doesn’t affect professional status – customers can still continue to trade as accountants, solicitors or directors and they don’t need to forfeit assets such as a car or house. The IVA is also managed by a licensed practitioner. There are, as with anything, disadvantages too however and these include a difficulty with obtaining future credit, bankruptcy if the IVA fails and a longer period of repayment than with a bankruptcy. The scheme is also only suitable for debts over 12k and the client must be able to make monthly repayments. The overall repayment amount will also be more than with bankruptcy and it must include all creditors.
Debt consolidation schemes are other good alternatives for debt management.
These are suitable for those with less significant or pressing debts; those who wish to avoid high and escalating repayments on a range of debts and simplify an array of loans and credit cards into a single monthly payment. A debt consolidation company will repackage existing liabilities into a single loan amount – which may be cheaper each month, but will likely run for a longer period over time. Many customers opt to build their own debt consolidation approach by taking out a low life of balance or zero percent credit card, which allows balance transfers from existing sources. This effectively provides the same result – a single, lower priced monthly repayment, without agency fees from a third party.
Regardless of which scheme you choose, elect for independent, non-fee paying and ideally government sponsored debt advice before entering into any debt scheme and go back to basics – good budgeting, self discipline with regards to spending, downsizing of brands etc. For many, professional options are an unnecessary last resort; early intervention and planning can be the key to solving a smaller debt problem before it escalates.
Looking to find the best advice on debt consolidation, then visit www.payplan.com to find the best advice on bankruptcy.
