Debt Free Tristan on 12 Jun 2008 05:08 pm
Help With Debt Problems That Are Out Of Control
If your debts are at a point where you think they are somewhat out of control, there are a number of things that can be done to help alleviate the problem.
Firstly, don’t fool yourself into thinking that something magical will happen to relieve the stresses on your finances, as that’s denying the existence of a problem. Unless you choose to do something about spiralling debts, then they will simply continue to get out of hand.
Negotiate with creditors
The first step is to negotiate with your creditors. If you simply cannot afford to make the payments, then you need to communicate that to your creditors. If you can give a reason why things are difficult (drop in earnings, loss of job, illness/injury etc), show them what your income is each month, and show a reasonable amount for each of the necessary outgoings (utilities, food, petrol etc), then you should be able to get your creditors to agree to reduce the amount you are have to pay them each month to a figure that is affordable.
Full and final settlement
If things do not improve, then there are other ways that you can reduce the cost of your debts. If you have some capital, you can use that as a payment to pay off a portion of the debt, and negotiate with your creditors to “write off” the remainder. This is called “Full and final settlement”.
Individual Voluntary Arrangement
If you don’t have any capital to use as a full and final settlement, you could do an IVA (individual voluntary arrangement). This is a formal arrangement with your creditors over a period of five years, whereby each year they asses your in an effort to see if you could afford to pay more back. By freezing interest, the majority of the money being repaid is used to repay the capital (some of the money may be used to pay for the insolvency practitioner). By entering into an IVA, you will adversely affect your credit rating for up to six years from the end of the agreement.
Bankruptcy
If you are not eligible for any of the other options, then filing for bankruptcy is an option. When you are declared bankrupt, all of the debts are written off. If you have any assets, they can be seized to help reduce the amount being written off by the creditors. Once a bankrupt, you will have that on your credit record for six years, however, there are many lenders out there that will lend to discharged bankrupts. A discharged bankrupt is someone who was declared bankrupt over twelve months previously, although in some instances it is less than twelve months. Again, bankruptcy is a formal arrangement with your creditors and will realistically in the current financial climate adversely affect your credit rating for up to five years after you have been discharged.
Some useful resources include:
http://www.debtdr.co.uk/ - Debt Doctors independent debt advisors
http://www.cccs.co.uk/ - Consumer Credit Counselling Service
http://www.citizensadvice.org.uk/ - Citizens Advice Bureau
http://www.bba.org.uk/ – British Bankers Association debt help factsheet
