Debt Management Plan or DMP:
A debt management plan is an informal agreement between you
and your unsecured lenders to repay your debt at a rate
you can afford. This agreement can replace your original credit agreement when
you can't afford your unsecured
debt payments anymore.
You can't include secured debts like a mortgage in a debt management plan.
With a debt management plan, you reduce your
monthly payments by repaying your debt over a longer period of time than you
originally agreed with your lenders.
You could negotiate lower monthly payments by
speaking to your lenders yourself, or you could ask a debt management company
to speak to them for you.
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Debt Relief Order or DRO:
To be considered for a DRO your situation must fit the following
criteria:
You owe less than £15,000 in unsecured credit debts, you are not a
homeowner, you have no more than £300 assets (although one car up to the value
of £1000 will be exempt) and you have less than £50 a month income left over
after you’ve paid all of your living costs
Debt relief orders help people in severe financial difficulties who have
a low income. They are a cheaper alternative to bankruptcy as the cost for a DRO is £90.
Under the terms of a DRO debts are frozen for a period of twelve months.
During this time your creditors agree not to pursue you for the outstanding
debt, nor add further interest on the balances. If, after the twelve
months, you still cannot pay the debts back at a reasonable amount each month,
they are written off.
It is recommended that you speak to a professional
debt management company in the first instance. |
Individual Voluntary Arrangement or IVA:
An IVA is a Debt Solution based on government
legislation and an alternative to bankruptcy. If you are struggling with
your debt repayments you can use an IVA to get your creditors to accept a plan
you can afford. Under this government initiative you need to show that you
cannot afford your debts. This is
done by showing that your monthly living costs and debts are more than your
monthly income.
To qualify for an IVA you
must have debts of over £15,000, owe at least 2 different creditors and able to
offer a minimum of £150 per month.
An IVA is a legally binding
agreement with your creditors to paying only what you can afford in a single
payment each month over a period of five years. Your creditors agree to write
off your debt which you’re not able to repay. You cannot currently set up your own IVA without the help of a
licensed Insolvency Practitioner so talk to a professional debt management
company in the first instance.
Debt Consolidation Loan:
This
can be a benefit and a good solution in certain cases but is not right for all.
It involves taking out a single, new loan to repay multiple existing loans and
commitments. It can have a good effect of reducing your monthly
outgoings (sometimes significantly) but, be aware that when you have debt problems to begin with,
you might not qualify for the low advertised interest rates and may have to
secure your home against the loan.
If you choose to go this route, be sure
to do all the maths and work out whether the consolidation loan actually will
reduce your overall payments - including the total interest you'll be paying for
the life of your loan.
A debt consolidation loan could be the right option for you but always speak to an expert first
THINK
CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE
REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT
SECURED ON IT |
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Bankruptcy:
Bankruptcy is a way of dealing with debts when you don't have any
available money to pay. Bankruptcy
gives the courts to power to control your assets but makes you free from debts
within 12 months by ensuring that any assets you have are shared evenly amongst
your creditors. Once you have received your discharge then
you are totally debt free subject to some limitations.
Bankruptcy is
a last resort and should only be considered when an individual cannot pay their
debts. If you have no or little disposable income then bankruptcy may simply be
your only option. Being made bankrupt for the first time generally means you
will receive your discharge one year after the date of the bankruptcy order, or
even less than a year in some cases.
It is always
important you seek professional advice before declaring yourself bankrupt – you
will have to go through a licensed Insolvency Practitioner anyway so talk to a
professional debt management company in the first instance. It may seem very appealing to think you can be debt free in 12 months
especially if you have a high level of debt, but there are drawbacks to
bankruptcy which you need to be fully aware of.
Once you are made bankrupt you have a duty to provide information to the
official receiver and the trustee, and attend their office as and when required.
THINK CAREFULLY & TAKE ADVICE
Every situation is different and different solutions fit different problems and so it's important that you research thoroughly, take advise and establish the best course of action and solution for YOU.
Don't be put off by so many different solutions, names and abbreviations ... just remember that, whatever your debt situation and no matter how bad it may seem to you, there IS a solution and you CAN deal with your debt.
What To Do About Debt wish you every success ... you can do it!
