» Managing debt – take a look at the options

Managing debt – take a look at the options

Managing debt – take a look at the options

Option one, debt management programme. Basically, debt management programmes involves negotiating with creditors, asking them to accept a few changes to the original repayment terms.

Next: debt consolidation loans. Rather than struggling to keep up multiple payments to multiple debts, some people in debt choose to consolidate their debts – taking out a debt consolidation loan that’s big enough to pay all their smaller debts off. This means they’ll only have one payment to make per month, thus reducing the risk of missing payments (and the charges and damage to their credit rating that can result).

Plus, a debt consolidation loan can come with a lower interest rate than unsecured loans. It can also give the individual the opportunity to think about their finances and arrange to repay the debt consolidation loan at a rate they can afford – again, repaying a debt more slowly will mean it takes longer to pay off and can end up costing more, so it’s vital to weigh up the pros and cons before proceeding.

Third: IVAs. A form of insolvency, an Individual Voluntary Arrangement is a legally binding agreement between a debtor and their creditors. If you owe around £15,000 or more to more than two unsecured creditors, an Insolvency Practitioner can tell you whether an IVA might be the best way for you to deal with your debts. If they think it is, they can draw up an ‘IVA proposal’, detailing how much you can afford to pay towards your debts every month for the next (normally) five years, once you’ve taken your essential expenses into account.

If a certain percentage of your creditors to the IVA proposal, the IVA can go ahead. You’ll agree to make those monthly payments (and usually free up some equity in your home, if you’re a homeowner), and they’ll agree to freeze your debt, hold off on any legal action (such as trying to make you bankrupt) and write off any outstanding debt once the IVA has successfully concluded. Please note: an IVA will have a serious impact on your credit rating, potentially making it harder to borrow money for the next six years.

Fourth: Protected Trust Deeds. A Protected Trust Deed is similar to an IVA, but only available to residents of Scotland. In most cases, a Protected Trust Deed will last for three years.

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