With the holiday season around the corner there is always pressure to spend money you don’t have and it’s tempting to leave dealing with debts you can’t afford until the new year. Well, there really is no time like the present. There are very few debt problems which are unsolvable. It might not be easy or quick, but there’s almost always a route. The quicker you deal with the issue the better; however, no matter how long you have been in debt there are always things you can do.
Debt isn’t just a financial issue; it can obstruct your daily life and can cause anxiety, stress and mental health issues for you. It affects friendships and family relationships – things that are especially important at this time of year.
Taking control of your finances may seem like an unmanageable task that you don’t feel like dealing with. You may feel that you can work through it without getting any assistance, but can’t cope with the creditors who constantly chase you.
There are various options available to help you clear your finances; budget successfully and start the journey towards a debt free future.
The first step is to admit to yourself that you need help. Take a deep breath and get in touch with a debt advisor. There are charities such as The Debt Counsellors and StepChange Debt Charity who will give you great free advice, but if you choose to pay (as most do) make sure you use a debt management firm that is a member of a trade association. Companies such as ClearDebt Limited are full members of Debt Resolution Forum (DRF). DRF is a body that monitors standards, operates a complaints and dispute resolution scheme and trains members’ staff to provide the best solution for you.
You may be offered various debt solutions which will include:
Individual Voluntary Arrangement (IVA)
An IVA is a legally binding agreement (statutory contract) between you and your creditors which allows you to make one affordable monthly payment (excluding your mortgage and any other loan secured on your home).
An IVA can only be arranged for you by a licensed Insolvency Practitioner who becomes your nominee and is then legally authorised to represent you in negotiations with your creditors.
An IVA usually lasts five years (possibly longer or shorter, depending on your circumstances). You should be aware that there can be negative consequences to an IVA and everyone’s circumstances are different.
Debt Management Plan (DMP)
A DMP is an informal debt restructuring solution for unsecured debt. If you have debts above £1,500 and owe money to more than one creditor, a DMP could be right for you.
In a DMP your chosen company will enter into negotiations with your creditors on your behalf, with the aim of getting them to accept lower repayments. They will also work to obtain a freeze on any further interest that might otherwise be added to your current debt.
Debt Relief Order (DRO)
A DRO is a solution you should consider if you can’t afford to pay your debts and do not qualify for an IVA or a DMP. You do not have to pay any monthly instalments towards your debt and should your financial situation qualify for this solution, it is a much cheaper option than Bankruptcy.
If you owe less than £15,000, have £50 or less of spare income every month and do not own your own home, then you may be eligible for a DRO. A DRO freezes your repayments and interest for 12 months and if your financial situation has not changed at the end of this period then your debts will be written off.
A DRO is obtained through the Official Receiver for a fee of £90. You must apply through an authorised debt advisor who will complete all the necessary paperwork on your behalf.
Bankruptcy
Bankruptcy is a formal insolvency route for individuals with serious debts that they cannot pay. Bankruptcy is usually selected when no meaningful alternative (such as an IVA) can be offered to creditors. Bankruptcy is a court driven process. You have to pay substantial court fees which start from £525.00, which makes this route more difficult for some people.
Becoming bankrupt is a very difficult decision and it should only really be chosen as a last resort. In most cases homeowners will lose their property (provided there is equity available after discharge of any secured loan or mortgage), however for many it lifts the burden of debt and provides a clear way forward.
What about my bank account?
If you are having difficulty obtaining a bank account or controlling your overdraft, a prepaid card may be the answer. The ClearCash Prepaid MasterCard® card and Icount may look similar to a credit or debit card, but it has a number of differences which can help you manage your money better (you could even improve your credit rating by adding Creditbuilder™† to your prepaid account). The card has 100% acceptance and is an excellent alternative banking solution.
Utility Switching
Another good way to stretch your disposable income is to check you aren’t paying too much for gas and electricity. The team at Money Mayday is directed to provide you with a variety of products which assists you in increasing your disposable income.
They have a wonderful team of saving specialists who can offer you a free impartial evaluation of your everyday expenses.
They are totally committed to saving you money on your electric and gas bills, phone bills, digital TV packages, broadband packages and much more, as well as looking at other ways to put you in a far better financial position for the future.
About the Author / 50connect editorial
