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This is where money is owed to the lender and is an obligation to the borrower to pay back what is owed.
Payment can be made in instalments over a set period of time. There are numerous types of debts, most commonly loans and credit cards.
If you are falling behind on payments towards your debts then you must contact your lender immediately. The sooner you contact them to discuss your situation the more sympathetic and helpful those organisations will be.
General Debt information
Debt Consolidation
Debt Management
Individual Voluntary Agreement (IVA)
Bankruptcy
The total debt for the UK has already reached the £1 Trillion mark and is rising by £4 million every minute. This means on average each individual owes £7000 unsecured and the total debt owed including mortgages is £17,000.
More and more people are borrowing more money to pay off existing debts and are struggling to keep up repayments.
The most common reasons for people to come in to debt are a significant change in personal circumstances, namely loss of job, poor financial management and addiction to shopping.
However there are ways’s to manage your way out of debt. Top
This is where you take out a loan to pay off all your debts through a single lower monthly payment and with a lower interest rate or which extends over a longer period of time leaving you with sufficient funds to live again.
Benefits of consolidating your debts are that you may not pay as much in interest as would normally have and by paying off this loan you will improve your credit rating (provided you do not spend any more money on your credit and store cards).
Before a lender would consider giving you a debt consolidating loan they will generally assess the credit risk you have and do a credit score. If you have a high amount of debt then you’re more likely to be accepted for a “secured loan” because the lender will have your property as security against the loan.
However you may also get accepted for a “personal loan” provided your credit rating is good and the debts are low.
To apply for a consolidating debt you must shop around for the most competitive interest rate. A lot of consumers fail to do this and end up with paying a higher interest rate. Top
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This simply means that the company will contact all your creditors and arrange a suitable amount of payment for you to pay towards each of your debts and they can arrange to have your interest rates and charges frozen so all your paying is the initial debt your took out in the first place.
Benefits of a debt management plan are that you will have one lower monthly payment which you can afford to your debt management company who will distribute the money to the companies you owe money to. This is easier to manage and you’ll have money left over to enjoy doing things that you were not able to do before.
Before a debt Management Company will consider accepting you they will look at the amount of debt you have accrued in total. This excludes all secured debt including mortgages and secured car finance. Then they will look at how much disposable income you have left after all your priority bill and day to day expenses are taken in to account. Whatever you have left will go towards paying off your unsecured debts.
Disadvantages of using a debt management company are that it is not legally binding so if they want, your creditors can continue to chase you for outstanding payments.
To apply for a debt management plan you must shop around. Some companies charge high fees and this can leave you paying less towards your debts. Top
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This is a legally binding agreement between you and your creditors. You would need to put down a proposal in which you specify your current financial status and the history behind it. You will then put forward what you can afford to pay them in the hope that they will accept. This agreement is forwarded to all creditors and if more than 75% accept than this agreement will be legally binding and the creditors cannot chase you for outstanding amounts.
Some creditors may also accept a one off lump some payment in full and final settlement.
Benefits of an IVA are that it is legally binding so once agreed the creditors cannot contact you or arrange court action against you in any way. The interest rates will be frozen. Your contributions will be based upon your ability to pay towards the proposal.
The requirement to be put forward on an IVA are that you must have at least £15000 worth of un-secured debts, at least a regular income of £200 a month available for payment in to the IVA because the creditors need to get at least 25% of their money back before they will consider starting the IVA; and owe more than 3 or more debts to different institutions.
In order to apply for an IVA you need to contact a licensed Insolvency Practitioner. Again you must shop around because some can prove to be very expensive. Top
This is where you have legally declared that you are no longer in a position to pay any debts and the proceeds of your assets are sold off to your creditors. This should be the last resort for any borrower once they have exhausted all their efforts in trying to pay back what they owe.
Once you declare yourself bankrupt you can be free from all unsecured debts, pay back less and stop creditors chasing for payment.
However you have a huge risk of losing everything you own including your house and bankruptcy can prove to be very expensive.
There are two ways to become bankrupt. You can either file your own bankruptcy petition where you obtain a form from your local county court fro £150 plus a £310 deposit or a creditor can make you bankrupt if you owe an unsecured debt of over £750.
Once this has been filed an official receiver will need to be appointed to protect your assets. You will also need and Insolvency practitioner who will act as a trustee to sell your assets to pay your creditors.
The bankruptcy generally lasts for 1 year by which time you will be discharged and during this time you will not be allowed to get further credit of more than £500 without telling the lender you are bankrupt and will not be allowed to use any credit/store cards. Top
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