In these times of increasing economic difficulties, more and more people are finding that they have bitten off more than they can chew, and they really need to reassess the right way to manage their debts.
People often jump into an option that they've heard about - IVA (Individual Voluntary Arrangement) or consolidation loan for example, but it's important to consider your circumstances when looking at your options.
In the UK, there are four real ways of managing things when you find that you can no longer make your payments.
The first one that many people look at is the consolidation of debts.
This involves either a consolidation loan or a remortgage, and can be a good solution if you are really disciplined about changing your ways in the future.
What happens all too often though, is that people pay off all their loans and credit cards, only to find that all that available credit proves too much of a temptation, and they end up with the consolidation loan as well as the unsecured debts they had before.
This leads to a pattern of consolidation which is a spiral that's difficult to escape from.
The second option is 'debt management'.
This is an agreement to pay a proportion of the payments to the creditors, often managed by a third party.
It's usually used when someone is temporarily low on funds e.
g.
following redundancy, when they are confident of having a job again soon.
Debt management is quite an informal agreement.
Creditors can continue to add interest, so the debt can continue to grow, and they can still continue with proceedings if they feel it is appropriate.
The IVA is a more formal agreement, which is catered for by the 1986 Insolvency Act.
The creditors agree to accept a lower payment under the terms of the IVA, and the debt is written off at the end of the period, usually 5 years.
An IVA is a good option for people who can afford to pay the reduced payments for the period and wish to avoid Bankruptcy.
The solution which most people see as the 'ultimate' option is bankruptcy.
This involves a short appearance in court where the judge grants the bankruptcy.
All debts are effectively written off, but the official receiver can realise any assets, and a take a proportion of any on-going disposable income for 3 years, to share between the creditors, pro rata.
There is a widely held view that property is always repossessed, but in fact there are circumstances where this can be avoided (e.
g.
If a friend or family member can afford to purchase the bankrupt's interest, or if there is zero or negative interest in the property).
There are of course implications of bankruptcy, including a ban on the bankrupt being a company director for one year and a poor credit rating which lasts for a long time.
For many people there the added implication that their contract of employment allows for their employment to be terminated in the event of bankruptcy.
And in the cases of people working in financial services or a banking profession it results in immediate dismissal.
However, bankruptcies are usually discharged after 12 months in straightforward cases.
There is obviously a fifth option.
Do Nothing! This option involves sleepless nights, piles of unopened post and increasing debts as you continue to pay for essential items on credit cards.
Doing Nothing really isn't an option, and most people will tell you that they wish they had acted sooner.
Where does this article leave you? Well if you're in the position where you need to consider these options, you are not alone.
It is a problem facing many people in the world today.
However, if you are serious about considering your options it pays to find a company who will offer you free impartial advice.
There are, of course, companies who are looking to make money from your misery and you will spot them from their high pressure sales techniques.
So take your time and choose your advisor carefully, but don't delay too long.
Doing Nothing really isn't an option.
People often jump into an option that they've heard about - IVA (Individual Voluntary Arrangement) or consolidation loan for example, but it's important to consider your circumstances when looking at your options.
In the UK, there are four real ways of managing things when you find that you can no longer make your payments.
The first one that many people look at is the consolidation of debts.
This involves either a consolidation loan or a remortgage, and can be a good solution if you are really disciplined about changing your ways in the future.
What happens all too often though, is that people pay off all their loans and credit cards, only to find that all that available credit proves too much of a temptation, and they end up with the consolidation loan as well as the unsecured debts they had before.
This leads to a pattern of consolidation which is a spiral that's difficult to escape from.
The second option is 'debt management'.
This is an agreement to pay a proportion of the payments to the creditors, often managed by a third party.
It's usually used when someone is temporarily low on funds e.
g.
following redundancy, when they are confident of having a job again soon.
Debt management is quite an informal agreement.
Creditors can continue to add interest, so the debt can continue to grow, and they can still continue with proceedings if they feel it is appropriate.
The IVA is a more formal agreement, which is catered for by the 1986 Insolvency Act.
The creditors agree to accept a lower payment under the terms of the IVA, and the debt is written off at the end of the period, usually 5 years.
An IVA is a good option for people who can afford to pay the reduced payments for the period and wish to avoid Bankruptcy.
The solution which most people see as the 'ultimate' option is bankruptcy.
This involves a short appearance in court where the judge grants the bankruptcy.
All debts are effectively written off, but the official receiver can realise any assets, and a take a proportion of any on-going disposable income for 3 years, to share between the creditors, pro rata.
There is a widely held view that property is always repossessed, but in fact there are circumstances where this can be avoided (e.
g.
If a friend or family member can afford to purchase the bankrupt's interest, or if there is zero or negative interest in the property).
There are of course implications of bankruptcy, including a ban on the bankrupt being a company director for one year and a poor credit rating which lasts for a long time.
For many people there the added implication that their contract of employment allows for their employment to be terminated in the event of bankruptcy.
And in the cases of people working in financial services or a banking profession it results in immediate dismissal.
However, bankruptcies are usually discharged after 12 months in straightforward cases.
There is obviously a fifth option.
Do Nothing! This option involves sleepless nights, piles of unopened post and increasing debts as you continue to pay for essential items on credit cards.
Doing Nothing really isn't an option, and most people will tell you that they wish they had acted sooner.
Where does this article leave you? Well if you're in the position where you need to consider these options, you are not alone.
It is a problem facing many people in the world today.
However, if you are serious about considering your options it pays to find a company who will offer you free impartial advice.
There are, of course, companies who are looking to make money from your misery and you will spot them from their high pressure sales techniques.
So take your time and choose your advisor carefully, but don't delay too long.
Doing Nothing really isn't an option.