In today’s volatile economy, more consumers are facing problems with settling their mounting debt. Although many are already over their limits with their debt ratios high over the acceptable rate, they continue to rack up more debt. Therefore, everyone is looking for debt solutions that can get them out of the financial hole. Some solutions are simple and a few adjustments can help a consumer to get back on track. However, in dire cases, the solution can be life-changing. Some solutions for debt include debt management and voluntary arrangements to write off debt. Debt consolidation is another option. Persons who are not able to use any of the previous options have to resort to bankruptcy.
Debt consolidation is a great option for persons who may have credit card debt and consumer loans in the range of £5000. It gets quite difficult for a person to handle a several monthly payments and in many cases, one or two payments are left in default. With consolidation, credit accounts are bundled and lumped into one debt. Then the consumer will make one monthly payment. This payment amount will be lower than the single payments that were being made.
However, the debt can be paid off more manageably and this leaves the consumer with more disposable income to save or apply to the same consolidated loan. On the other hand, consumers who consolidate their debt must practise a higher level of discipline so that they do not end up overextended again.
Another debt solution that can alleviate debt burden is debt management. Instead of worrying, a debtor who has credit accounts in the range of £2000 to £15,000 can use the services of a debt management company which will serve as an intermediary between the creditors. There are several advantages to this arrangement. The debt management company can work with the creditors to negotiate lower interest rates or to keep current debts at the same interest rate. Lower monthly payments can also be negotiated which of course is very helpful to someone who may be over their debt ratio and is unable to meet other monthly commitments.
When a consumer has to make a choice of paying a water bill or a student loan payment, he or she definitely needs to seek the services of a debt management professional to aid in alleviating the monthly payment load. Consumers must be aware that each situation is unique and that creditors may not wish to lower the interest or payments. However, a debt manager can still negotiate some other option that can help the situation in addition to helping the consumer to set a monthly budget.
Individual Voluntary Arrangement
For consumers with debt over £15,000, the best debt solution is an Individual Voluntary Arrangement (IVA), which is a legal agreement between the debtor and his creditors for a period of five years for continuous payments to be made on credit accounts. It was introduced by the United Kingdom government in 1986 in the Insolvency Act. The advantages are that the monthly payments that the debtor has to make will be based on what he can afford and once the agreement is signed and followed through, any balances on the debts incorporated in the agreement are written off. Therefore, the debtor is protected from any fines, legal proceedings or bankruptcy, once the conditions in the agreement are followed through.
Bankruptcy is usually the last option that anyone will take to solve their problems with debt. This usually means that the debtor has far overextended himself and has exhausted all other options. In some cases, the creditors can declare the debtor bankrupt in an effort to recover monies owed. Bankruptcy makes it hard to build credit again and the debtor would have to work very hard to save and practise better debt management in the future.
There are several solutions for debts that people can use if they are feeling the pinch of a slow economy. Depending on the debt load, debtors can opt for debt consolidation or debt management. They can also consider entering into an Individual Voluntary Arrangement. In dire cases, bankruptcy may be the only option and this can viewed as an opportunity to start anew. Whichever debt solution is used, the debtor would need to change their spending habits and set a realistic budget so that all credit accounts are handled properly in the future.