Debt Solutions – Consider the Options
Solutions such as a Debt management plan, Individual Voluntary arrangement, Debt consolidation, or even as a final straw, bankruptcy are all viable solutions when looking for ways to resolve a debt problem.
Below is a summary of these solutions and what they entail.
A Debt management plan enables you to repay your debt in a way that is affordable. This is achieved by offering creditors a reduced monthly repayment which is manageable.
Generally you would need a minimum of £100 a month to realistically offer the creditors an amount which they would be willing to accept.
The main thing is to offer creditors a fair percentage of your available income. Therefore, if you have 3 creditors, you would need to fairly split the £100 to each creditor; this generally works out on a pro-rata basis.
Below is an example of how to divide your available income between your creditors.
If your total debt is £5000 owed to 3 creditors and you have £200 a month available, you would divide the amount you owe to a creditor by your total debt and multiply it by your available surplus, i.e.:
Total Debt £5000
Creditor 1 £2400
Creditor 2 £1200
Creditor 3 £1400
Surplus available £200
Creditor 1 – £2400 / £5000 x £200 = £96
Creditor 2 – £1200 / £5000 x £200 = £48
Creditor 3 – £1400 / £5000 x £200 = £56
As long as you can show the creditors you are offering a fair percentage of the debt, more often than not, they will accept the offer of payment.
As well as offering a reduced payment, more often than not, the creditor will freeze the interest on the account to allow you to repay the debt without increasing the amount of debt by adding interest.
Debt management plans are not legally binding, but may prove to be a suitable option.
Individual Voluntary Arrangement
An Individual Voluntary Arrangement is a legally binding agreement between you and your creditors. IVA’s work differently to Debt management plans as they are repaid over 5 years whereas a debt management plan runs until the debt is repaid.
You may be required to include any equity you may have in your property, however, this will be discussed when setting up your proposals of repayment to your creditors.
The idea behind an IVA is to offer your creditors a reduced lump sum which is generally repaid over 5 years. Any assets you have may be included in the arrangement. An insolvency practitioner will discuss with you whether or not an IVA is suitable, and if so, they will work out the best way to repay your debts.
The IP will set up the repayment proposals agreed by you and send them over to your creditors for your creditors to vote on whether they find the proposals acceptable or not. Creditors who represent 75% or more of the total outstanding debt must accept the repayment proposals in order for the IVA to be accepted.
Once the IVA is accepted, you and your creditors are then tied into a legally binding agreement. This means the creditors can no longer write or phone requesting monies from you.
Debt consolidation Loans
Debt consolidation Loans are not for everyone. Sometimes it is all too easy to borrow money to pay money off, yet in the end, you can find yourself in a worse situation than before. It can sometimes help as a quick fix, but in the long run, you end up struggling more with debt and still looking for solutions.
On the flip side, if you know you are a good money manager, make sure you work out the figures, including how much interest you will be paying on top of the money you borrow and you’re not tempted to buy something else with the money which lands into your bank account, then debt consolidation may be a solution.
Consider whether or not an alternative option is available which may better solve the situation rather than taking out another loan.
Regardless of your financial situation, it is always advisable to look into all options to find out which is the best solution to repay debts, if no option is suitable and you find you have no realistic amount to offer creditors, then maybe bankruptcy is the only solution.
There is no shame in bankruptcy, although that is what some may like you to believe. Bankruptcy is there because it is needed, and if it the only viable solution, then you can make a petition, but always get as much information as possible so that you are 100% sure bankruptcy is right for you and you are not restricting yourself in anyway.