Guide to tackling debt

Trying to get on top of your debts and regain control of your finances can be confusing, and often daunting. There are so many solutions that might be available, and understanding which could be right for you is not easy unless you know a lot about them.

If your finances are relatively healthy, then you may not even need a specific solution. Some people find that strict budgeting or cutting back on a few things is enough to make their debts affordable. But if your situation is more serious than that, you`ll probably need to consider the various debt solutions on offer.

Different debt solutions

Each debt solution is designed to help with different circumstances and varying levels of debt, and which one is right for you will depend on the situation you`re in.

You should discuss your options with a debt adviser, as they can help you decide which solution is best for your needs. In the meantime, here`s a quick guide to some of the most common solutions.

Debt consolidation loan

A debt consolidation loan is a solution for people who don`t really have a problem with debt, but want to make their finances more manageable. Your loan will be used to pay off multiple existing debts, combining them into one and making them easier to keep track of.

You may also be able to reduce your monthly outgoings by repaying your loan over a longer period of time, making each payment smaller. Note that doing so will also mean paying interest for longer, so you may pay more overall.

Debt management plan

This is a solution designed for more serious debt problems. If you can`t afford your existing unsecured debt repayments, a debt management plan can reduce them to an affordable level, while leaving you with enough money to cover your other essential living costs.

As with a debt consolidation loan, the longer repayment period may cost you more in interest overall. However, lenders will often agree to freeze or reduce interest and charges on your debts during the plan, so you`d only have to repay what you actually owe (plus any fees the debt management company may charge).

Your lenders are under no obligation to accept a debt management plan, but they may do so if it`s clear that you can`t afford to repay your debts as originally agreed.

IVA (Individual Voluntary Arrangement)

An IVA is a formal solution designed for people who can`t afford to repay their unsecured debts in full within a reasonable period of time. If enough of your lenders agree, it can enable you to repay as much as you can afford over (normally) five years, and on successful completion, the unsecured debt you haven`t repaid is written off.

You must usually be able to make regular monthly contributions to your IVA to qualify. If you`re a homeowner, you may have to release some of the equity from your home in the final year of the arrangement.

Note: entering a debt management plan or IVA will have an impact on your credit rating. However, the consequences of not getting help with your debts could be just as severe, if not more so.

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Please remember, this is just an information tool. We would always recommend you speak to a debt advisor for the most appropriate way to resolve your debt problems.

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Tags: tackling debt, debt, guide, guide to debt, debt management, debt consolidation, IVA

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