Running on massive levels of debt is indeed an unpleasant experience. Nobody would want to lead a life with burden of lump-sum amounts on one’s shoulder. But people do get entangled in maze of debts under various circumstances. And once the debts start mounting rapidly over time, they speedily spiral into trouble.
However, there is no debt problem that cannot be resolved. Just the way every lock has a key to it, every debt problem has a solution to it.
Here are seven options which you may consider in order to find an effective solution to your debt problems:
- Debt Consolidation
Debt consolidation or loan consolidation is an excellent way to get rid of numerous loans. It allows you to combine multiple debts into a single secured loan at a lower rate of interest. And thus it makes room for an easy and affordable monthly payment.
You can also get unsecured debt consolidation loan. But that would require you to count higher rate of interest compared to that in case of secured ones.
However, the best part of debt consolidation program is that you may prolong your repayment period if you are in dire need of it.
- Debt Management Plan or DMP
Debt management or DMP is a repayment agreement between the debtor and creditor, where both the parties agree upon a monthly repayment amount over a certain period of time. It is a feasible way to help the debtors pay off unsecured loans in an organized way.
You may seek professional help from a credible debt management company, so that it can negotiate the repayment amount with your creditor on your behalf.
- Individual Voluntary Arrangement or IVA
Individual Voluntary Arrangement is somewhat close to DMP, but a little different in one respect. IVA is a legal process between the debtor and the creditor that allows a debtor to pay whatever amount he/ she can afford. While in case of DMP, the payable amount is settled at the creditor’s discretion, IVA makes room for the debtor’s convenience.
The IVA was introduced by the Insolvency Act 1986 in the United Kingdom, as a means for the debtors to avoid harsh consequences of bankruptcy.
- Bankruptcy
Bankruptcy or Insolvency is the last thing one resorts to, when completely submerged in debts.
If you are declared a bankrupt, a Trustee or an Official Receiver sells your assets to pay off your creditors. You may petition to the High Court in London or in a County Court near you, for filing bankruptcy. You must detail your poor financial status in the petition, in order to get your appeal granted.
If you owe at least 750 as unsecured loan to your creditor, the creditor may file bankruptcy against you, in order to retrieve the owed amount.
The bankruptcy procedures usually take one year to get discharged so that the borrower can start afresh without much delay.
- Administration Order
Administration Order is somewhat akin to debt consolidation but involving the interference of the county court.
Administration Orders are granted by the county court in order to settle an individual’s outstanding debts.
If your outstanding debt is less than £5,000, you are eligible to apply for Administration Order. If you get an administration order, the creditors shall not be allowed to take any legal action against you.
But in this situation the debtor will be required to make payments to the court. And in turn, the court will take care of the process and distribute the money to all your creditors on a pro-rata basis.
- Debt Relief Order or DRO
Realizing the sky-high expenses of bankruptcy procedures, the Tribunals, Courts and Enforcement Act 2007 introduced a new kind of debt relief in April, 2009. It is known as Debt Relief Order or DRO. It is an affordable alternative to bankruptcy, especially for those having poor financial means.
But unlike bankruptcy, it does not involve the intervention of the court. The Insolvency Service in partnership with skilled debt advisers helps the debtors to get a debt relief order.
Once a DRO is granted, the debtor does not need to pay anything towards the debt. After a year, any remaining dues are cancelled by the creditors thus declaring the debtor debt free.
You must be a citizen of England or Wales in order to be eligible for getting a DRO.
- Scottish Trust Deed
Scottish Trust Deed is a superb alternative to bankruptcy and a counterpart of the IVA for the Scottish citizens. It is a voluntary agreement between the debtor and the creditors, in which the rights of the debtor’s assets are transferred to a trustee (an insolvency practitioner). And the trustee sells the assets to pay the creditors.
It is very important to exercise prudence, while dealing with finances, especially when it comes to managing personal finances. But it becomes all the more important, when one encounters acute debt problems.
So, whenever you find yourself neck deep in debt, do not let panic rule you. Keep yourself calm and focus on any one of the debt reliefs that suits you best. And take your first step towards a debt free life!
