Unsustainable personal debt can be very stressful and could seriously affect your health and well-being. It's important to recognize that you have a problem, conduct plenty of research, consider your options and find the best debt solution help.
Should I Cut Spending and Boost Income?
Enter your income and expenditure figures into a spreadsheet as this will help you to identify ways to cut your outgoings. There aren't many people who can't find some excesses that can be cut out. It's a lot easier to save money than to make money.
If you've cut your expenses to the bone, you need to make some extra income. You may be able to find a part-time job, but this isn't always possible, especially in the current economic climate. Don't despair because there are legal ways to reduce the amount that you pay to creditors.
Clear Small Debts with a Consumer Debt Solution
An Administration Order is a debt relief program designed to help people with personal debts under £5000. You'll need at least one County Court Judgement (CCJ) to qualify for assistance. Once agreed, you'll make a single payment to the court. A 10% administration fee will be deducted, but the remainder will be disseminated to your creditors on a pro rata basis.
Improve Affordability with a Debt Management Plan
This debt-free plan enables you to make a single payment to an intermediary, and they distribute the proceeds to your creditors on a pro rata basis. They deal with creditor contact so much of the stress associated with money problems is alleviated.
It's suitable when you have 3 or more creditors and your unsecured debts are under £15,000. Interest and charges can normally be frozen, but the full debt will gradually need to be paid off. A debt management plan is a voluntary agreement and can be amended by either party at any time.
Write-off Debt With an Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement is a legally binding arrangement between you and your creditors. In order for an IVA to be approved, it requires the support of 75% of creditors in terms of value. If the vote isn't favourable, bankruptcy is the likely outcome.
Once agreed, it's necessary to keep-up with the payment schedule for a period of 60 months. The main advantages are that you can usually keep your professional status and home. The insolvency isn't made public. You may be able to write-off up to 75% of your unsecured debts.
It's necessary to appoint an Insolvency Practitioner (IP), but this is taken care for you. Due to the cost of appointing an IP, an IVA is only suitable if you have serious debts of upwards of £15,000.
Resolve Serious Debt Problems with Bankruptcy
Personal bankruptcy, the best-known debt-free solution, doesn't have the same stigma attached to it anymore. It's only advisable to proceed with this debt relief plan if no other option is available to you.
You'll normally be discharged after a period of 12 months, unless a bankruptcy offence has been committed. An offence would include the loss of money through speculation or fraud, but most people are released from their debt obligations after a year. Your personal finances will be heavily scrutinised so it's important to be honest and upfront from the outset.
It's never too late to tackle money problems. However, it's imperative that the right way to become free from debt is chosen. If uncertainty exists, it is advisable to consult a free debt advisory service, such as the Citizens advice Bureau (CAB) or National Debtline, before proceeding.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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