Finding the Right Debt Solution for You

credit Debt solutions Are you struggling With Debt Problems? These debt solutions could help you get debt free.‎

If you’re struggling with debt, you’ll know how stressful it can be. Lack of sleep, anxiety, insecurity and a general feeling of helplessness is just the half of it.

You’re not alone. In fact, according to the Bank of England, unsecured debt, including spending on credit cards, is rising at its fastest pace since 2006.

You may have tried everything to tackle your debt – such as budgeting and reducing spending – but you still haven’t managed to make a dent in the final amount.

This means you’re in debt crisis and now need to consider getting outside help.

Once you reach this point, you’ll find that there are a number of debt solutions available to you – and more importantly – people who can help.

When it comes to debt, a problem shared is definitely a problem halved.

But don’t just jump at the first debt plan you find. Picking the right one is just as important as choosing how to save or invest. Here we look at some debt solutions that are available.

When it comes to debt, a problem shared is definitely a problem halved. Click To Tweet

Debt Solutions – which one?

There are lots of debt solutions available but it’s easy to get confused between the terminology. We hope this list will make things a little clearer….

1. Debt Management Plan (DMP)

What is it?

A Debt Management Plan (DMP) is an agreement between you and your creditors to pay your unsecured debts (credit card, personal loans etc.) at a reasonable monthly rate.

Debt management plans are usually used when you can only afford to pay creditors a small amount each month.

A DMP is not legally binding and does not mean that your debts will be written off.

A DMP is usually arranged on your behalf by a third-party provider. Some debt management companies will charge a fee for the service but there is no need to pay this as there are many charities – such as Step Change – who will help you with a DMP free of charge.

This means you’ll make a single monthly payment to the DMP provider and they’ll contact all of your creditors and divide your monthly payment between them.

You will need to agree a budget to live on with your DMP arranger and an amount you can pay.

Is it right for you?

This solution can help people pay off their debts at an affordable rate without having to deal with individual creditors. It is generally aimed at those with small debts (below £7,000).

Bear in mind that this solution means that it will take longer to pay off your debts and it may affect your credit rating for longer.

Also, your creditors can still add further interest to your debt, making the amount you pay back higher.

2. Debt Consolidation

What is it?

Debt Consolidation is where you borrow more to pay off your existing debts in one single loan (debt consolidation loan).

This can either be through secured borrowing against an asset (your home for example), or through further unsecured borrowing, such as a personal loan.

Is it right for you?

Think carefully.

Taking out a debt consolidation loan can leave you worse off. You will likely have a poor credit rating so the new loan will have higher interest rates and arrangement fees.

Get expert, impartial advice before taking out a debt consolidation loan. It might sound an obvious thing to say but the only thing worse than debt – is more debt.

3. Individual Voluntary Arrangement (IVA)

What is it?

An IVA is a legally binding agreement with your creditors to pay all or part of your debts. It is for those with debts above £7,000.

You agree to make regular payments to a licensed Insolvency Practitioner (IP), who will divide this money between your creditors. IVAs are not available if you live in Scotland.

Is it right for you?

You can apply for an IVA if you can afford to pay something towards your debts, but not the full amount that your creditors want.

However, you will need to show you have a regular long-term income as the repayments will usually cover a period over 60 or 72 months (five to six years).

The IVA itself will also cost you money to arrange and run.

4. Debt Relief Order (DRO)

What is it?

Debt Relief Orders are for people on low incomes with debts of less than £20,000 who have no assets (house, savings, shares and investments, car).

A DRO freezes your repayments and interest for 12 months and if your financial situation hasn’t changed in this time – your debts are written off.

You can apply through a list of organisations named by the Insolvency Service here.

Is it right for you?

DROs are only granted to those on the breadline who have no assets or anything to sell.

If you qualify, remember that some debts – such as student and social fund loans or child support payments won’t be included.

5. Remortgaging

What is it?

If you are a homeowner, a remortgage is when you switch your existing mortgage to a new one.

This can help alleviate debt problems as you can either release equity in your property or reduce your current mortgage payments, releasing money to pay your debts.

Is it right for you?

Before you consider remortgaging, you need to think about how much it will cost you to switch mortgages, what the new interest payments will be (if you have poor credit they may be higher) and how much the new monthly payment will be.

It’s important to seek advice about your mortgage situation before jumping into a new deal.

6. Personal Bankruptcy

What is it?

Bankruptcy is a form of insolvency (when you are unable to pay your debts), which means your unsecured debts must be more than your assets before you can apply for it.

It is for people who have no hope of paying off their debts and it means that any assets you have (such as your house) will be sold to pay your creditors.

When you make yourself bankrupt, almost all of your unsecured debts are written off, allowing you to make a fresh start.

You make yourself bankrupt by submitting an online application and paying the bankruptcy fees.

Is it right for you?

Let’s be clear: bankruptcy is the last resort.

People make themselves bankrupt if they have not been able to arrange other debt solutions.

Going bankrupt can seriously affect your life as you will not be allowed further credit for up to 6 years. Bankruptcy can also affect your business and pension.

If your assets are worth more than your debts, or if all of your regular payments are up to date and you can afford to keep paying them, bankruptcy is unlikely to be the best option for you.

Always seek independent advice before going bankrupt – there may be other solutions better suited to you.

Related: What is Bankruptcy? and How Do I Declare Bankruptcy

What Should I Do Now?

Stop. Before you do anything – get help.

If you are struggling with debt problems and don’t know where to turn, there are organisations who will help you find the right solution for you, free of charge.

So, get in contact with one of the following charities today – once you start on the path to freeing yourself from debt you are already half way there.

Fee-Free Advice:

And if you need some help getting out of debt and you are looking for an actual step-by-step plan, my eBook: How to Get Out of Debt and Stay Out Once and For All is the best place to start!

how to get out of debt quickly

In this guide, I’ll show you EXACTLY how I paid off over £32K of debt in just two years and how to stay out of debt forever.

You will learn how to get out of debt fast even when you are living from paycheck to paycheck on your own – starting now!

Click here to start getting out of debt and get the life you really want!

Always remember that the most difficult part of getting out of debt is getting started!

Over to you

Are you suffering with problem debt? Or have you already been through one of the debt solutions above? Share with us here.

 This post is part of the Debt Management series, you can read all posts in the series here.

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10 Lessons Learnt from Paying Off £48K
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