The obvious question to ask yourself is whether you can increase your income and reduce your expenditure, perhaps there is something you can sell that will raise the necessary cash, but it is likely that you have been there already and you have found that the solution doe not lay there.

The first thing you need to do is to decide on which debts are the most important ones, that is those that if you do not maintain will result in serious difficulties. Examples of these debts are mortgage repayments and rent, utility bills for water and energy, any form of secured loan, for instance a car loan, child maintenance payments, any court fines, council tax bills, telephone bills, and insurance on your home and car. The consequences of not paying these bills range from losing your home to being sent to prison.

The dents that are not so important to repay are credit and store cards, bank overdrafts, general unsecured loans and catalogue purchases. By not servicing these debts you do not risk the dire consequences of not servicing the propriety debts, but you will see a severe impact on your credit rating.

It is important that you talk to the lower priority creditors that you can’t afford to pay and explain to them your circumstances. It is better to be proactive than reactive, and never promise to pay anything that you are not comfortable with. Sometimes they will reduce or freeze credit charges. Paying a little regularly is much better than missing promised repayments.

Most people in this situation benefit from professional debt management help from professionals who are accustomed to dealing with creditors and debt collectors.

One option is Individual Voluntary Agreement. But what is an IVA, and what can it do for you? This agreement will take the power from the creditors and hand it over to you, the debtor. Using this document will prevent you from being charged with any legal action from the creditors, and only use what money you have for your debt and no more. It also keeps the creditors from adding any extra fees or charges to your current debt. After all, with today’s economy it is unlikely you will be able to pay off your debt without some kind of management tool to help keep you on track, and most people are searching for help to get their financial situation in check.

An Individual Voluntary Agreement can often be a better choice than bankruptcy as it will mean you get to keep your family home – with bankruptcy it would be sold off and the money split between everyone you were in debt to. An IVA is also a private agreement, whereas bankruptcy notices are published in local news papers. This can often cause upset if family members or co-workers see it.

However, help is available. There are various debt solutions that could help you tackle your debts. A brief look at two of them…

Debt management plan

Debt management plans can help people who can’t keep up with their payments to their debts. A debt management plan is an informal agreement between you and your lenders which involves a ‘re-arrangement’ of how you will repay your debts.

If you enter a debt management plan via a professional debt management organisation, they will try to negotiate with your creditors for lower monthly payments based on what you can actually afford. They may also ask your creditors to freeze/reduce interest and other charges, which means that you will be able to clear your debts more quickly.

You can do all this on your own, but many people still opt for the convenience of a professional debt management plan.

Either way, it will have an impact on your credit rating for six years, and can increase the overall cost of repaying your debt, as repaying it more slowly will mean it’s accruing interest for longer (unless your
creditors have agreed to freeze interest).

IVA (Individual Voluntary Arrangement)

An IVA is a legally binding agreement between you and your creditors. An IVA might be suitable for you if you had a high level of unsecured debt that you couldn’t afford to repay, but you could commit to making reduced monthly payments.

Before an IVA can go ahead, voting creditors who ‘own’ at least 75% of your debt will have to approve of the terms laid down in your IVA proposal. This proposal will be drawn up by you and your IP (Insolvency Practitioner), and will detail how you propose to repay your debts.

When the IVA begins, you will (in most cases) start making monthly payments to your IP, who will subsequently distribute this money amongst your creditors as agreed.

An IVA will usually last for 5 years, after which (assuming it has come to a successful conclusion) any remaining unsecured debt will be written off.

Note that an IVA will have a significant impact on your credit rating for six years from the time it begins.

If you are struggling with your finances and want help addressing your debts, then you should contact a professional debt adviser. The right debt adviser will be able to tell you if a debt solution could help you.

And before you realize it, you’re too deep in debt. In other words, this means, you’re not earning enough to pay off the massive sums you owe.

How then do you get yourself out of such a situation? Well, the only sane method available is debt consolidation. This involves using one of the many methods available to reduce the amount you owe and reach an agreement with the creditor.

To do so and bring about a credit card debt settlement, you’ll have to engage the services of a debt consolidation company or a credit counseling service. They’ll go through your debts, check your financial status at that given point and ascertain the best method to use in getting you debt free again.

This will require them to negotiate with your creditors and convince them to reduce the interest rates or cancel some late fees charged to reduce your amount due, often in exchange for collateral.

The plain truth is that there are no positive benefits of using a credit card to make purchases. Yes, you do get to pay for the items you purchase at a later date, but you also have to pay much more for the item than the amount on price tag. Most credit card companies charge between 12 to 18 percent interest and some charge even more.

Minimum credit card payments barely cover the interest each month which results in it taking years to actually pay off a balance. For example, if you owe $6,000 in credit card debt and have a minimum monthly payment of $150, it will actually take you almost 17 years to pay off your balance. And, that’s only if you don’t charge anything else during that time.

If you’re feeling overwhelmed by debt and don’t know where to turn, debt consolidation might be the solution for you. By combining all of your payments into one, lower interest payment, you will be able to actually start paying on the balance you owe and not just be making payments on the interest for years to come.