In Debt? The Four Options

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by: Laura Brown
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Word Count: 407
Date: Sat, 20 Jun 2009 Time: 7:47 PM
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There are five options available for those finding themselves saddled with debt problems. These are Debt Consolidation, Debt Management, Individual Voluntary Arrangements (IVAs) and Bankruptcy. In fact there is a fifth option that has been introduced recently which is called a Debt Relief Order (DRO) but in reality this is a specialist type of bankruptcy.

Debt Consolidation involves rolling all your debts into one by taking out a loan in order to repay all of your other creditors. This option if often the most useful one if you still have a credit rating that is not too badly affected. You should only deal with a reputable debt consolidation company and one that can obtain you a good rate of interest and affordable repayments. This option is mostly available to people who have sufficient equity in their homes in order to secure the loan.

Debt Management involves taking a complete overview of all your debt problems and prioritising them so that the most important debts are repaid first. For instance, keeping up repayments on a mortgage is more important than keeping up payments on an unsecured loan. A debt management plan also involves persuading your debtors to agree to your making reduced repayments for a limited period of time and possibly freezing interest. The implementation of a debt management plan is best done with the help of a professional.

Individual Voluntary Arrangements can only be implemented by a licensed insolvency practitioner. It involves obtaining agreement from your creditors to accept a reduced total loan repayment. Repayments are then made at an affordable rate for an agreed time period, typically up to five years. After that time the outstanding debt is wiped out. One downside of IVAs is they impact heavily on your credit rating and you are quite likely to find obtaining credit in the future will be difficult.

Bankruptcy can be voluntary or it can be imposed on you be your creditors. Voluntary bankruptcy should not be taken lightly and can have serious repercussions such as losing your home and not being able to obtain credit. The advantage is that your debts will be written off in a short period of time. It costs £475 to go bankrupt. A DRO is a form of low cost bankruptcy for those with debts of under £15,000 and assets of no more than £300.

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For more expert advice and guidance when looking for debt consolidation or debt advice, look no further than the confidential advice on offer by debt-free.org.uk