What-Debt-Solutions-Are-Available-Consumer-Debt-Help

What Debt Solutions Are Available

You may be facing debt that is becoming unmanageable. It starts with a few credit cards and now it’s building up into something much bigger. Tackling this problem right now can help you to avoid serious issues that could have an impact on your future. Whatever your situation, there are debt solutions available to you. From small amounts of consumer debt, to large figures of debt that you can’t work out how to pay off. With some free advice, support and a plan, you can find a way out of your debt. Here’s a snapshot of what debt solutions are available to you.

Table of contents:

    Debt Consolidation

    What Is It

    Have you got multiple debts and owe money to several different creditors? Is it getting a little overwhelming when several people are chasing you at once. Consolidating debt is a way of taking out one overall debt to pay off all the others.

    For example, instead of trying to keep up with high interest payments or which creditor you owe the most money to, you can consolidate this into a single payment to a third party, such as a debt management company.

    They will look at your debts and arrange them into a single payment for you. In simple terms, you pay this single amount to the debt management company, and they will then distribute the money between your creditors, so you don’t have to deal with them.

    Who Is Debt Consolidation For?

    Debt consolidation is a good option for people who are struggling to keep on top of repayments and perhaps find dealing with creditors stressful. However, it isn’t free. You’ll have to pay charges to the debt management company for arranging the payments. Hence you’ll need enough money to pay them first.

    Why Use Debt Consolidation?

    This is a useful solution for people who have debt from credit cards, store cards and loans for example. It also means you don’t have to negotiate with creditors yourself, so that problem is taken away from you.

    Debt Relief Orders

    What Is It

    So what debt solutions are available instead of debt consolidation? In simple terms, a Debt Relief Order or DRO is a quicker and cheaper alternative to bankruptcy.  It means you don’t have to pay certain kinds of debt for a specified period, which is usually around 12 months. At the end of this period, the debts included in the DRO are written off or ‘discharged’ and you don’t have to pay them.

    In order to apply for a DRO, you need to meet certain criteria. For example, your debts must be £30,000 or less and your assets aren’t worth more than £2,000 in total. After paying tax, national insurance and normal household expenses, you have less than £75 to spend each month. Therefore, a DRO is not the right option for everyone facing debt.

    Who Is A DRO For

    Essentially, a DRO is a debt solution for people who can’t afford to pay any of their debt, but don’t want to go through the bankruptcy process. You still need to pay £90 towards the official receiver’s fee, but you may be able to get a charity to help you with this.

    Why Use a DRO?

    A DRO is cheap and quick debt solution that might work well for people who can’t afford to pay their debt. It is less formal than bankruptcy and the debt is repaid over a year, rather than several years. However, only certain debts can be included in a DRO, so it’s worth speaking to a debt adviser first to see if this is the right solution for you.

    Individual Voluntary Arrangements

    What Is It

    An Individual Voluntary Arrangement or IVA is a legal agreement between you and your creditors. Simply put, you agree to pay off a percentage of your debt over a period of time, by means of affordable repayments. For example, if you owe more than £6,000 are you are struggling with payments, but can at least afford a certain amount per month, then an IVA could be a good option for you. However, your creditors have to agree to the arrangement too.

    Who Is An IVA For?

    It’s worth bearing in mind than an IVA is a formal legal agreement so you are committing to debt repayments for a set amount of time. During the length of the IVA, your creditors cannot chase you for payments, all charges are frozen and you can make much lower single payments. However, you will have to pay fees to a debt management company and an official receiver to organise your IVA, so it’s worth checking to see if you can afford this.

    Why Use An IVA?

    IVAs can be a debt solution for people who want debt repayments over a set period of time, but cannot afford to pay their debt in full. But you can afford to make some repayments at an affordable rate and you want to protect your assets. Whereas a DRO is better for people with low incomes and few assets. But if you don’t think an IVA is right for you, what other debt solutions are available?

    Bankruptcy

    What Is It?

    When creditors have tried all other methods to get you to pay your debt and you are unable to do so, they may be able to force you into bankruptcy. Involuntary bankruptcy is when a creditor asks a court to make you bankrupt. Alternatively, you can also apply for bankruptcy yourself if you see it as your only option.

    Usually, debt advisers and charities see bankruptcy as a last resort. Although bankruptcy will help to clear your debts, you will be risking valuable assets such as your home and possessions.

    Who Is Bankruptcy For?

    Often, people choose to declare bankruptcy when they don’t have anything to lose. A bankruptcy can only go ahead if you are insolvent, this means that the value of things you own has to be less than the debt you owe.

    However, as soon as you’re declared bankrupt, everything you own stops being your property and can be used to pay off your debts. This includes your car and house. So if there is any equity in your home, you may be forced to sell it in order to release the equity to pay your debts. There are some exemptions, including things you need to do your job and everyday household items.

    Why Use Bankruptcy?

    Typically, a bankruptcy order lasts a year, but it stays on your credit file for at least six years. After being’ discharged’ from your bankruptcy, your debts are written off and you can get a fresh start. For some people, bankruptcy can be a relief because it means that debt collectors stop hassling you for debt repayments. However, it can have a serious impact on future debt and credit applications as well as employment applications.

    Now you know what debt solutions are available to you, the next step is choosing the right option for your situation. Therefore, it’s a good idea at this point to get some free debt advice to help you make a decision.

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