I have severe debts – what help is available?
by admin on 06/08/09 at 6:44 am
Being in any kind of debt can be a stressful experience, but when your debts become severe, they can be a major problem – especially if you don’t think you’ll be able to repay them as you originally intended.
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.
