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.
Once the IVA begins, you will make regular monthly payments to your Insolvency Practitioner, who will distribute the money amongst your creditors.
The IVA will usually last for five years, and on successful completion your remaining unsecured debts will be written off.
How do I know which debt solution is right for me?
Before deciding on any debt solution, it’s a good idea to discuss your situation with a professional debt adviser. They will be able to offer expert debt advice, as well as help you decide on the type of debt solution that is most suitable for your circumstances.