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debt solutions advice

With the cost of living rising, interest rate changing and inflation at a high level and house prices remaining strong getting into debt is easier than ever.

The Financial Services Authority (FSA) has already warned that more and more households are reaching a tipping point in their finances; this means that a dip in the economy could mean disaster for many households.

Experts are also worried that people who are coming out of a fixed rate mortgage deal will struggle to meet higher repayments if they cannot get onto a similar fixed rate.

If you do find yourself with debts that are hard to manage you are responsible for them, but don’t panic there is lots of help out there.

Before you seek debt advice it is good to understand your debt options as they may influence where you go for assistance.

The following options may be available to you:

Debt Consolidation

This is where you can consolidate all or some of your existing debts with a loan to give you one monthly payment which will be easier to manage. The debt consolidation will mean that you will pay slightly more but it will allow you to spread your payments. Debt consolidation loans usually have a higher interest rate and should be carefully considered especially if you are going to secure it against your home.

Debt Management Plan

If your total debts are less than £17,000 and you cannot afford to make the minimum payments, but you would be able to afford a reduced total contribution to your creditors, then your best option may be a debt management plan. A debt management plan is an informal payment plan with the debts completely repaid at the end of the term. Minimum debts should be £2,000 with monthly repayments of at least £120. These plans can be negotiated yourself with your creditors or you could use a specialist debt management provider.

Individual Voluntary Arrangement (IVA)

IVA’s were developed as an alternative to bankruptcy, and once they are approved they can protect your home. An IVA is a formal legally binding arrangement with your creditors. An IVA avoids your debt increasing further and allows you to repay your commitments in affordable monthly payments over a fixed period of time which is usually about five years.

The amount of unsecured debt, such as credit cards and loans which you cannot afford to pay is written off. The minimum monthly repayment should be at least £250. An IVA could be your best option if you have unsecured debts totaling £17,000 or more and if you can afford to make monthly contributions or you can raise a lump sum to offer your creditors as a settlement figure.

Bankruptcy

Bankruptcy should certainly be a last resort option. Bankruptcy is really for people who have little to lose or those people who cannot afford to pay anything to their creditors. Bankruptcy is not ideal for homeowners with a variety of assets as they may be forced to sell them. The law surrounding bankruptcy is complex and specialist advice should always be sought.

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