The role of debt management
At a time like this, many people are finding it increasingly difficult to manage their finances. What could debt management help?
Debt management is designed to help people who cannot afford their debt repayments.
When someone enters a debt management plan with a professional debt management company, the organisation will talk to their unsecured creditors and ask them to accept lower monthly repayments, based on what the borrower can realistically afford. They may also ask them to reduce interest and/or waive charges – although creditors are not obliged to agree to any changes in their repayment plan.
At a time like this, one important aspect of debt management is the fact that it doesn’t rely on house prices and/or access to further credit. This means it isn’t directly affected by problems in the housing and credit markets – unlike other debt solutions, such as debt consolidation loans.
Debt management is about negotiating with lenders, informing them that you can’t afford to repay your debt as originally agreed – possibly due to a change in your financial circumstances.
But is debt management right for everyone?
After speaking with a professional debt adviser, some people might find that debt management isn’t the right debt solution for them, and that they might be better off with an alternative debt solution, such as an IVA (Individual Voluntary Arrangement).
Be aware that if you enter a debt management plan, you are defaulting on your original repayment agreements. This will damage your credit rating for 6 years – which could make credit harder and/or more expensive to obtain for that time.
Finally, if you agree to repay your debts over a longer timeframe, it may increase the overall cost, due to interest charges.
Note: If you can afford to keep up with the repayments to your debts – or if you don’t think you’ll ever manage to repay your debts – then debt management is not right for you.
For more information on debt management, and to find out if a debt management plan would be right for you, you should contact a professional debt adviser.
Tags: debt, debt consolidation, debt management, IVA
Debt Management and Rising Inflation
What makes debt management a good way of getting through a financial downturn? In a word: affordability. A well-thought-out debt management plan offers borrowers a chance to bring their expenditure back in line with their income – something that’s particularly important when the cost of living is on the rise.
In August, the official inflation rate (CPI – Consumer Prices Index) reached 4.7%. In other words, the cost of living is going up quite quickly: nowhere near as quickly as it was in 1975, when inflation hit 25%, but a lot faster than a year ago, when it was under 2%. It’s normal for things to get more expensive, but when prices rise faster than salaries, people simply have less money left over (disposable income) once they’ve paid their essential bills. For people already struggling to manage their debt repayments, any decrease in disposable income can have serious consequences.
This is where debt management can help: when someone finds they can’t keep up with their monthly debt payments, they may be able to re-negotiate those payments. Basically, there are two kinds of debt management.
There’s what some people call ‘DIY debt management’. A borrower can call their creditors, explain why they can’t afford to keep on paying as originally agreed, and see what the creditors suggest. They might, for instance, agree to accept lower payments, freeze interest or waive charges.
Many people with financial problems prefer to seek professional debt advice from a specialist who will speak with creditors on their behalf. Professional debt management organisations, after all, should have much more experience in this kind of negotiation. They may have long-standing relationships with creditors, which could help them reach an agreement that reflects both the individual’s needs and the creditors’.
There’s no universal agreement on which kind of debt management plan is better. Some people want to handle the negotiations themselves, and see no need to talk to debt management professionals. Others are happy to get them involved, whether it’s because they’re not confident discussing finances with their creditors, or because they want help budgeting and drawing up a repayment plan that creditors are likely to accept.
Either way, it’s important to realise that creditors don’t have to agree to any changes. They’re free to consider legal action if they think that’s the best way of recovering their money. But if the individual obviously can’t keep up with payments as originally agreed, there’s a good chance creditors will decide it makes more sense to amend the repayment plan. This is the point of debt management – the individual can bring their repayments down an affordable level, and creditors get their money back (even if it’s more slowly) without resorting to legal action and/or debt collectors.
Tags: debt advice, debt consolidation, debt help, debt management, IVA
I’m In Debt – What Are My Options?
“I’m in debt. How do I get out of it?” It’s a common question these days, and a problem that’s made no easier by today’s economic troubles. But whatever debts an individual is facing, they’re likely to have at least one debt solution available to them.
Here, we take a look at just four debt solutions: debt management; debt consolidation loans; IVAs (Individual Voluntary Arrangements) and Trust Deeds. To some people, they’re just names – but to others, they’re a path back to financial stability. So how do they work? What’s the difference between them? Perhaps most important: which one could be right for me?
Let’s start with debt management.
Basically, debt management means negotiating with creditors, asking them to agree to a few changes to the repayment terms. It’s easy for your circumstances to change in ways that mean you simply can’t keep up with payments as originally agreed. You may have lost your job, had a baby, or seen your mortgage payments shoot up. Or maybe your debts simply got out of control.
Whatever the reason, it’s in your creditors’ interest (as well as yours) to find a realistic way for you to repay your debts, and a professional debt management organisation can help make that happen. They can contact your creditors on your behalf, asking them to consider things like accepting lower payments, freezing interest and waiving charges. So debt management might mean your debt takes longer to pay off (because you’re paying it back more slowly), but it can keep it from escalating out of control.
Who debt management is right for: people who can’t keep up with monthly payments to their unsecured debts.
Next: debt consolidation loans.
Rather than struggling to keep up multiple payments to multiple debts, many people choose to consolidate their debts – taking out a debt consolidation loan that’s big enough to pay them all off. This means they’ll only have one payment to make per month, 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 many other forms of unsecured credit. It can also give the individual the chance 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.
Who debt consolidation is right for: people who want / need to reduce their monthly payments.
Third: IVAs.
A form of insolvency, an IVA is a legally binding agreement between a borrower and their creditors. If you owe around £15,000 or more to multiple unsecured creditors, an Insolvency Practitioner (IP) can tell you whether an IVA might be the best way for you to get out of debt. 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 enough of your creditors agree, the IVA can start. You’ll agree to make those monthly payments (and possibly 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.
Who an IVA is right for: people who owe three or more unsecured creditors a total of around £15,000 or more and can’t afford their monthly repayments – but can afford regular smaller payments.
Fourth: Trust Deeds.
A Trust Deed is similar to an IVA, but only available to residents of Scotland. In most cases, a Trust Deed will last for three years.
Who a Trust Deed is right for: residents of Scotland who owe three or more unsecured creditors a total of around £10,000 or more and can’t afford their monthly repayments – but can afford regular smaller payments.
Finally, no debt solution is ‘right’ for everyone. If you’re in debt, it’s vital to talk to a debt specialist who understands all the available debt solutions and can help you choose the one that’s right for you.
Tags: debt advice, debt consolidation, debt help, debt management, IVA
Considering Bankruptcy? Consider an IVA First.
Are you considering bankruptcy? Depending on your circumstances, bankruptcy may indeed be the best way forward, but there’s a good chance there are alternative solutions to your debt problems – and it’s essential you look into them before you commit yourself to anything.
On its website, The Insolvency Service itself states that: ‘Bankruptcy should always be the last resort as the debtor will lose control of their assets and will be subject to bankruptcy restrictions, potentially up to 15 years’.
Bankruptcies and IVAs
Bankruptcy can let someone repay what they can afford to, write off the rest, and make a fresh start financially. However, it does come with a string of ‘downsides’: you’re almost certain to lose your home if you’re a homeowner, you’ll be prevented from working in certain positions, it’ll be advertised in the newspapers, and it’ll stay on your credit rating for six years – which can make credit harder to obtain as well as more expensive.
If your debts are serious (as they almost certainly are if you’re even considering bankruptcy), then you certainly need to take action – but that doesn’t mean bankruptcy is necessarily the best choice for you.
Depending on your situation, you may be better off looking into alternative debt solutions, such as an Individual Voluntary Arrangement (IVA).
An IVA is, in some ways, quite similar to bankruptcy. For example, they’re both forms of insolvency which let people repay what they can afford and write off the rest of their debt. They both stay on a credit rating for six years, and they’re both unable to write off certain debts, such as secured debts and court fines.
In some ways, though, they’re very different. If you’re a homeowner, perhaps the most important benefit of an IVA is that it’s very unlikely to force the sale of your home (although you’ll probably have to release some of the equity in it).
Bankruptcy or IVA?
So which one might be better for you? There’s no way to be sure without talking it over with a specialist, but those who are in a position to pay a regular contribution towards their debts, homeowners and people with certain jobs (solicitor, for example, local government councillor or company director) may be particularly interested in an IVA as it could protect their home and/or career.
Having said that, bankruptcy is likely to be over faster. IVAs normally last five years, while bankruptcies normally last one year – although you may be required to make payments for three years, and if a Bankruptcy Restriction Order is granted (which generally happens only if conduct has been questionable), this can last 15 years.
This isn’t the kind of decision you can make quickly, but it is important not to waste any time: if you leave it too long before you talk to a debt advice expert, you might find you no longer have a choice.
Tags: bankruptcy, debt consolidation, IVA
Deciding on the Right Debt Solution
Finding the right debt solution for your situation can make a big difference to your ability to repay your debts, as well as how long it takes you to repay them.
There are a number of solutions for people who find themselves struggling with their debt, all of which are more suitable for certain situations or certain levels of debt.
What debt solutions are available?
Debt consolidation loan
A debt consolidation loan is a loan taken out to pay off your existing debts. One advantage of this is that it can simplify your finances by turning several debts into just one – meaning you only have to deal with one creditor (and one repayment) each month.
It’s also possible to reduce your monthly payments with your debt consolidation loan, by making repayments over a longer period of time than your original debts. However, this means you may pay more interest than you would have on a shorter repayment term.
That said, it is sometimes possible to reduce the amount of interest you pay. If your debt consolidation loan carries a lower APR than the cumulative APR on your original debts, you are likely to pay less interest overall.
Although your payments may be reduced, you should still ensure that you can afford your repayments. If you don’t think you will be able to, then another debt solution may be more suitable.
Debt management plan
A debt management plan is an informal arrangement between you and your creditors, agreeing on an alternative repayment plan to enable you to pay back your debts more easily.
It’s possible to arrange a debt management plan on your own, but many people prefer the convenience and experience of a professional debt management company.
IVA (Individual Voluntary Arrangement)
An IVA is a legally-binding agreement between you and your creditors in which you will agree to pay off a percentage of your debts, and have the rest written off. It is usually considered a preferable alternative to bankruptcy.
Before you start, an Insolvency Practitioner will work with you to draw up an initial proposal to your creditors. Creditors accounting for 75% of your total debts must approve this proposal for the IVA to go ahead.
Tags: debt advice, debt help, debt management, IVA
IVAs: what they are and how they help
If you are struggling with very large debts – usually £15,000 or higher – then you may be eligible for an IVA (Individual Voluntary Arrangement). IVAs prevent thousands of people from going bankrupt every year, and are widely considered a preferable alternative to bankruptcy.
What is an IVA?
An IVA is a legally-binding agreement allowing you to avoid bankruptcy by agreeing to pay off a percentage of your debts over a set period of time.
Before you enter into an IVA, your Insolvency Practitioner will work with you to draw up an IVA proposal. This sets out how much you can afford to pay to your creditors.
Creditors accounting for at least 75% of your total debt must approve the proposal for the IVA to go ahead. If this happens, all creditors will be bound by the terms of the IVA.
Once your IVA begins, you will make regular monthly payments to your Insolvency Practitioner, who will divide the money amongst your creditors on a pro rata basis (i.e. based on what proportion of your debts each creditor is owed). These payments will be based on how much you can afford, as assessed by your Insolvency Practitioner, after your essential costs have been taken care of. This will usually continue for five years.
If you’re a homeowner, you may be expected to release some of the equity in your home in the 54th month (half way through the final year) of your IVA. Anyone on an IVA may also be required to give up some of any additional income earned while the terms are in place (including pay rises, bonuses and commission).
On successful completion of the terms, your remaining unsecured debt will be considered written off.
How can an IVA help my situation?
The main reason most people enter into an IVA is because it is usually considered a preferable alternative to bankruptcy. The main difference between the two is that an IVA will not result in you losing assets (i.e. your home) like bankruptcy can.
An IVA is by no means an ‘easy’ way out of debt, but many people with unmanageable debt consider it their best option. You must be committed to repaying as much of your debts as possible, as you will be left with little or no spare income for the duration of the IVA – but you can at least guarantee that on successful completion, you will be free of debt.
However, it may well be that another debt solution is more appropriate for your situation. If you’re struggling to repay your debts, you should always contact an expert debt adviser to discuss your options.
Tags: debt consolidation, debt management, IVA
Helpful Debt Management Tips
It’s often difficult to know where to turn when it comes to managing debts. Many people are unaware of the help that’s available, and many do not realise that their lenders may be willing to help out if money gets tight.
There are a number of things can do to help get yourself out of debt. Here are a few tips for making managing your debts easier.
Contact your lenders
If you are struggling to meet your debt repayments, you should always contact your lenders first. In some cases, your lender(s) may be willing to make a temporary agreement allowing you to make lower monthly payments, or even a payment holiday, in order to get your finances in order.
If you cannot agree anything suitable with your lenders, then it’s time to speak to a debt adviser.
Get free debt advice
A good debt management company will offer free, confidential debt advice. In some cases, a little debt advice may be all that’s required.
A debt adviser will talk you through your situation to help you decide the best way forward for your circumstances. They’ll tell you if a simple reshuffle of your finances could help – or, if the situation is a little more serious, they’ll recommend an appropriate solution to help you pay off your debts.
Assess your own costs
Often, the best form of debt management is to look at your outgoings in detail and see where you might be able to cut back. Consider which costs are essential and which you could do without. Do you really need that satellite TV subscription if you’re struggling to pay your mortgage?
Also consider costs that you could make lower yourself, perhaps by switching provider. Gas, electricity and broadband, for example, are all provided by a wide range of companies, all of which are looking to compete with each other. Do your research, and you might be surprised at how much money you could save overall.
Budget with your money
Some people overspend simply because they haven’t planned their finances well enough. By budgeting properly, it’s easier to avoid unexpected costs and to ensure you have enough money for all your expenses.
At the start of the month, calculate exactly how much you are likely to need to spend by looking at previous months’ expenditure. Add up each part separately – your household bills, mortgage payments, food costs, debt repayments, etc. – and the remaining money is your disposable income.
By doing this, you know in advance when and where your money is leaving your account, and the disposable income provides a convenient safety net should anything unexpected arise, as well as covering your leisure costs.
For more information on debt management, including debt consolidation and IVA, visit GregoryPennington.com
Tags: debt, debt consolidation, debt management, IVA
The Importance Of An IVA And How To Get One.
If you are amongst those who have to take loans very often? If yes, then don’t be one of those who simply take loans and never repay them. Instead think smartly and be wise.
There are several programs which are legal and designed by the government to help those who frequently raise loans but are not generally the defaulters. One such program is IVA debt program. IVA program is a legalized program which entails signing of a contract between the debtor and the creditor. The contract is then mediated by insolvency professionals or insolvency practitioners and any dispute arising between the two will be solved by these officials.
IVA debt help is an umbrella program which has several debt help programs under it. A person going for debt help should seek the help of insolvency professionals to decide the best program to meet their needs. The program generally also depends on the kind of amount involved and total debt. The repaying ability of the borrower is also taken into consideration while offering the debt help program.
IVA has its own benefits. Firstly, IVA is a legal system where in the government provides the opportunity for right borrowers and option to borrow money in a legal way. This also means that once the contract is signed between both the parties then the creditor can not threat or contact the borrower. Now it is up to the professionals to take care of the matter. The responsibility of the borrower’s debt is transferred to the practitioners.
Secondly, contract signed by the debtor and the creditor contains various details so that no contention arises to any party, such as the repayment scheme is decided and signed, which means that the payment of the borrowed money by the borrower is decided on his or her monthly income. The contract also contains the upper limit, within which the loan has to be repaid completely. This period is generally up to five years.
Thirdly, IVA debt help programs take into consideration all possibilities and scenarios which might arise like debt consolidation, , etc. The borrower, thus need to fulfill some conditions which are must for any program, like the borrower should have a monthly income. The number of lenders and borrowers is also fixed, there should be minimum three lenders; also the debt of the borrower should be a maximum of £15000. Both the parties have to sign the contract to make it legal and is a prerequisite by the IVA.
If one feels that his track record is clean and he has the ability to repay the loan within time then insolvency practitioners and professionals should be consulted. Only they are allowed to offer the debt help program to the borrower. They are the ones who will plan the debt program, including the repayments by the borrower depending upon his monthly income and convenience. In case of any dispute the borrower should consult and contact the insolvency professionals.
Tags: Debt Connect, debt help, debt management, IVA
