As a major part of the UK, falling into debt is like falling down a rabbit hole; it’s confusing and overwhelming. This is why, after researching UK laws, we’ve included here some solutions that you can use to help drag yourself out of a messy financial situation.
Debt Consolidation
This is one of the simplest and most direct solutions to get rid of your debts. What does it mean, though? Well, in short, it is when you take out a loan to pay off any and all debts to any parties with outstanding accounts. The closer you look, the more the solution will seem pointless. However, debt advisors highly disagree. On a larger scale, having only one debt that you pay some of at the end of each month, not to mention, with only one interest percentage instead of several different levels of interest, is a lot better. Why? Because with three outstanding debts, it is unavoidable to get stuck with paying quite a large sum; a repayment of three debts, at the end of each month. On the other hand, with only one debt/account to settle, you’ll be able to save some money by the end of the month for next month’s repayment. That way, you’ll be more relaxed and financially stable while paying your debt. Plus, if you repay each month’s sum on time, you’ll be doing your credit score a huge favor for when you need another loan.
Debt Management Plan
This is an informal solution, similar to an “Individual Voluntary Arrangement” which we will be addressing later in the following paragraph. Basically, it is designed to help you write down your debt to a more realistic amount; as opposed to an insanely huge sum. How is that done? You can use one of two ways; either talk to your creditors yourself and reach an agreement that satisfies both parties, or ask a professional debt management company to help you negotiate a deal with the parties you owe money to. As for payment plans and debt settlements, you need to have a sit down where you analyze your income, expenditure, and debts, then design a plan and pitch it to your creditors. From what we’ve seen, some creditors agree to reduce the total amount of the debt, if the debtor offers paying the reduced loan in full. In other instances, a debtor just pays off the remaining amount, bit by bit, each month; until the reduced debt is full paid off. The tricky thing with this specific solution; as with IVA, is that you need to qualify for it. Some factors include: owing over £1,000, as well as, having two or more creditors. However, for more information you can take a simple online test offered by a company that specializes in Debt Advice NI to see whether you qualify for a debt write down or not; they tend to offer free consultations which can definitely help you out. Finally, remember that this solution is informal, meaning, you can terminate the agreement, or alter it, if your financial situation changes, or anything happens.
Individual Voluntary Arrangement (IVA)
This is a formal version of a debt management plan; it is also known as an alternative solution to declaring bankruptcy. The main stipulation for you to qualify for such an agreement is by owing more than £12,000, and not having the ability to afford full payments. Since, it is a formal agreement, you can’t opt out until the agreed upon period has been fulfilled; it can last for up to 60 months. Yet, on the bright side, you won’t be agreeing to something out of your control. While you are required to hire a professional; an insolvency practitioner, to set up an IVA for you, your debt management company will be responsible for preparing a suitable IVA proposal for you. It’s a simple process to know how much you’re able to pay, which then gets sent to creditors for the final decision of whether to accept the debt reduction or not. After the arrangement has been made and the amount paid, your remaining debts get written off. However, you should keep in mind that not anyone can get an IVA, they have to be a resident in Northern Ireland; or any UK territory.
Debt Relief Order
That is another formal solution designed as another alternative to total bankruptcy. If your application gets accepted, you don’t pay anything to any of your creditors for a year. If your financial situation has not improved by the end of the 12 months, the freezing of your debts is followed by all of your debts being permanently written off. While it is not as extreme as bankruptcy, it is better if you only consider it as a last resort, if you’re in serious trouble. Why? Because having a Debt Relief Order on your public register is severely damaging to your credit report. Lastly, to qualify, you must have a maximum outstanding debt of £20,000, your assets can’t be valued for anything over £1,000, and finally, your income should cover your expenses and leave you with a maximum surplus of £50.
Bankruptcy
We’ve saved the most drastic solution for last. While it will cost you around £640 to apply for bankruptcy, in exchange, you’ll be declared officially incapable of repaying your debts and so, they’ll be written off. Yet, keep in mind that you’ll also suffer major drawbacks from the declaration of bankruptcy; from losing control over your assets, to having to inform any party you get financially involved with your bankruptcy. Overall, it has a negative impact over several life aspects; even after you get your finances back on track.
To wrap up, we have one thing to stress on. While getting out of debt requires a lot of planning and perseverance, it is not impossible. All what you need to do is seek out help as soon as possible, and have a solid financial plan. In doing so, you’ll be giving yourself more options and a better chance at getting rid of your debts, without having to declare bankruptcy, or suffering from irreversible damages.
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