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| Alternatives to Informal Debt Arrangements
Not all debt is bad. Debt becomes bad when you cannot afford to repay your credit commitments. In some cases this is where the level of debt is very high, but not always. There are many people who owe small levels of debt but still can’t afford their repayments.
Always seek expert professional advice. There are a number of rogue companies who will gladly help you get into more debt! Solution Remortgages can offer advice on Debt Management. Call us on 0800 520 0315 to speak to our expert advisors.
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1. Unsecured Lending :
Obtaining an unsecured loan at a sensible interest rate is always difficult if you are financially stretched or have been refused in the past.
If we assume that you have already explored borrowing from your bank or building society or increasing the limits on your cards and still have a requirement for additional borrowing, then the truth is that you are probably already financially stretched. You probably don’t need to borrow more money, but rather you need to make your existing debts more affordable.
2. Debt Management (Homeowners and Tenants) :
Debt Management is an alternative debt repayment plan to an IVA that allows you to pay just one low affordable monthly payment to your creditors. If you qualify for an IVA you should explore that option first before accepting a debt management plan. A debt management plan does offer you legal protection from your creditors, does not automatically freeze interest and charges and does not allow you to write off a substantial amount of your unsecured debt.
However, if you are not eligible for an IVA or cannot afford further borrowing, a debt management plan shows a commitment to your creditors that you want to pay off your debts in full and as a result the pressure applied by your creditors and their collections agents will reduce.
Debt Management is an informal arrangement between you and your creditors. The Debt Management Company offers your creditors a reduced monthly payment and charges you a monthly management fee, typically 15% - 19%.
There are 3 potential drawbacks to a Debt Management Plan:- The plan continues until you have repaid off all your unsecured debts in full. This can often be counted in 10s of years.
- Not all creditors act responsibly and freeze interest and charges, which continue to be applied to your debt. If your monthly payment (less the monthly fee to the debt manager) does not cover the interest and charges your debt will increase.
- The fees that you pay to the debt manager together with the interest and charges are added to your debt, which further increases your payment term.
A debt management plan is not really a debt solution. It does not solve your debt problem. What it does is to allow you to manage debts thereby reducing creditor pressure and giving you peace of mind. But creditors are not legally bound by them and can still take recovery action.
3. IVA (Homeowners and Tenants) :
If you qualify for an IVA, it is invariably the best solution for you, as it is the only solution that avoids bankruptcy and will write off a large proportion of your debt. Every other solution (except bankruptcy) will increase both your debt and the term of your repayments. If you qualify for an IVA you would only pay one affordable monthly payment, interest and charges would be frozen, your creditors would stop chasing you and at the end of your IVA, typically 60 months, all the unsecured debt that you haven’t repaid is written off. An additional benefit of an IVA is that as a homeowner, your IVA could protect your home from your creditors and bankruptcy proceedings.
4. Secured Loan/Remortgage (Homeowners Only) :
Consolidating all your unsecured debts into one affordable secured payment may be an option. If you have more equity in your home than you have unsecured debts, it may be possible to qualify for a secured loan, consolidation loan or a re-mortgage. Providing that you can afford additional borrowings, this could be a good option for you. If you have less equity than your unsecured debt, further borrowing against your home will not be appropriate for you as it would still leave you in debt and could put your house at risk.
Never secure your unsecured debts on your home if you think you may struggle to make the repayments in the future, because you are putting your home at risk. Seek expert help to determine whether you can afford the repayments and remember that the salesperson you are speaking to does not have your best interest at heart, but is thinking of the commission that they will earn from your loan!
5. Bankruptcy
Bankruptcy should only ever be considered when all other options have been exhausted. Only take professional advice from a Licensed Insolvency Practitioner.
If you are considering a Debt Management Plan, then the chances are that you debts are spread out over a number of different creditors and have perhaps been built up over a number of years.
Solution Remortgages believe that every case is different and your individual financial circumstances are unique to you. This is why Solution Remortgages has expert advisors who are able to talk through your finances and help you to come to the best decision.
Below you will see a simple table detailing the features and benefits of the four main debt solutions. Put simply, the more ‘Green Ticks’ answers the better! To help you understand the options available to you in more detail, simply fill in the enquiry form so that we can contact you or call us on 0800 520 0315.
| | Debt Management | IVA | Consolidation Loan | Bankruptcy | | Will my debts be cleared within an agreed period? |  |  | | | | Will interest be frozen? | Usually | | | | | Are my creditors likely to accept less than I owe? | | | | | | Will my debts be reduced? | | | | | | Will this stop my debts from increasing? | | | | | | Is the service Free? | | | | | | Will I be able to avoid selling my home? | Probably | | | | | Am I protected from my unsecured creditors? | | | | | | Will my creditors stop pursuing me for repayment? | Possibly | | | | | Will I be seen to be trying to do the right thing by my creditors? | | | | | | Do I retain control of the situation? | | | | | | Is it a confidential procedure? | | | | | | Will I avoid the stigma of bankruptcy? | | | | | | Will the procedure be administered by a licensed Insolvency Practitioner? | | | | |
If
you want to hear more about how an Informal Debt Arrangement can work for you, or whether
you would be suitable for an Informal Debt Arrangement, simply call our expert advisors on 0800 520 0315
quote ref 1533, or fill in the
Mortgage Wizard to see what other solutions are available to you. |
