by Admin
7. October 2009 00:34
Debt Doesn't Have to be a Hopeless Situation
There are a number of ways in which you could be more efficiently managing your debts. By seeking debt advice you could benefit from money saving tips and budgeting advice. Your advisor may even suggest a professional solution that will help you get out of debt.
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Firstly, you need to ensure that you know exactly how much money you have coming in and going out of the household financial pot. It may help to draw a line down the centre of a piece of paper and list all of the income you receive in one column (wages, benefits, tax credits, pension or other source of income) and in the other write down all of your expenditure. Include rent/mortgage, utility bills, food, travel to work and other essential items, but leave out payments towards your unsecured debts. Unsecured debts are those that are not secured against a property or assets and include personal loans, overdrafts, credit cards, store cards, catalogues etc.
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Once you have taken away the money you pay towards your priority payment, any amount remaining is classed as your "disposable income". This is the realistic amount you have available to repay towards your unsecured payments.
If the minimum amount you can contractually pay towards all of these balances (i.e. the minimum payment on your credit cards, store cards etc) is less than the disposable income figure, you could probably do with some basic budgeting and debt advice to help you cut back on your expenditure or for ways to boost your income. If the total amount that you are contractually supposed to pay towards all of your unsecured debts is more than your disposable income, then you need to seek some impartial debt help from a specialist provider.
A specialist will be able to go through all of your accounts and help you regain control of your financial situation. They may recommend some simple tips to ease your situation, or in some circumstances they may suggest a professional debt solution.
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Professional debt solutions
There are a number of professional solutions that can be used to help alleviate finances and prevent debt problems from getting any worse. These include Debt Management Plans (DMPs), Individual Voluntary Arrangements (IVAs) and Trust Deeds.
Debt Management Plans (DMPs)
A Debt Management Plan is a way of simplifying finances and making repayments towards debts more affordable. This is done by gathering the payments towards your multiple unsecured balances and joining them into one single payment. This payment will be the disposable income you have remaining each month, and will be paid towards the company providing your DMP. They take away all of the hassle of dealing with many creditors, as you just make one payment to them and they then distribute the payments amongst the people you owe money to on a pro rata basis. They will also act on your behalf to try and reduce or freeze the amount of interest and charges on your account - to reduce the total amount of debt that you have to pay.
The single monthly payment covers all of your unsecured balances - thereby simplifying your finances as you just make one payment each month. It is also always affordable for you, because if your priority payments or your income changes, then your monthly payment is reduced or increased accordingly. This means that if your wages drop or you are made redundant and have less money, you pay less towards your debts each month. The amount you pay is always your disposable income (until you can contractually begin making the minimum payments again or when a DMP is no longer necessary), so will always be affordable to you. If your wages then increase you can raise the monthly payment and pay debts off quicker. Payments towards the outstanding debts are rescheduled over a longer period to make them more affordable - so you still repay what you owe but in a way that is more convenient for you. Because of this, a Debt Management Plan is considered a flexible debt solution.
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| Individual Voluntary Arrangements (IVAs)
An IVA works in much the same way as a Debt Management Plan, in that all of your unsecured balances can be repaid with a single affordable monthly payment, but it is repaid over a set period of time. Usually this is within five years. It involves a legally binding contract between you and the people you owe money to, which is drafted by a qualified Insolvency Practitioner. They will also be able to provide IVA advice and support throughout the term. The contract protects you from your creditors changing their payment demands or the terms of the agreement. Once the IVA is complete, you walk away from all of the remaining unsecured debt - which could mean that a large proportion of the total amount owed is written off.
There is less stigma attached to an IVA than bankruptcy, as your name doesn't appear in the local press or the London Gazette, and you are less likely to have to sacrifice your home or other assets. You may have to remortgage to release equity in a property, but this will only be an agreed affordable amount and you remain in your property.
IVAs are a great alternative to bankruptcy for many people, as they also allow your career to be unaffected. In some professions such as the police force, accountancy or other jobs that require the handling of money, you cannot continue to work having been made bankrupt.
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| Trust Deeds
A Trust Deed is in effect, an IVA but for people living in Scotland. Many of the details are the same; however the repayment period is usually much shorter - normally a Trust Deed is repaid within three years. As with an IVA all unsecured balances are gathered into one monthly payment, and an agreement is drafted by an Insolvency Practitioner that provides protection from changing creditor demands.
All of the above professional solutions can be offered by reputable debt advice organisations like The Debt People or Chiltern.
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