What Debt Solutions Are Available?

by guest on April 2, 2011

in Debt Management

Debt Solutions

The following is a sponsored post on behalf of Debt Advisory Centre, exploring three debt solutions available to you (depending on your financial situation).

What debt solutions are available?

If you’re in debt, and you’re wondering what help is available, you may be glad to know that there are a variety of flexible solutions tailored to meet your needs.

Each debt solution is different, and would be appropriate for people dealing with different levels of debt. Here, we’re going to take a look at just three of the debt solutions available.

Debt Management Plan

This may be right for someone who cannot afford to keep up with their debt repayments as they agreed to in the first place, but who can repay their debts within a reasonable time frame (under different terms though).

A debt management plan works by asking an individual’s unsecured creditors to agree to changes to the original repayment plans – they may agree to accept reduced monthly payments and they may agree to freeze/reduce interest and charges on the borrower’s debt. It’s important a borrower is aware, though, that their creditors aren’t obliged to agree to any changes to the original repayment agreements.

What’s more, if they arrange to repay their debts over a longer period of time, they may pay more in the long run.

IVA (Individual Voluntary Arrangement)

This is a formal debt solution between a borrower and their unsecured creditors. It’s only available to people who cannot afford their repayments as they stand and can’t afford to repay their debt within a reasonable period of time.

A borrower must be able to commit to making regular reduced payments for the duration of the agreement (usually five years) before it can go ahead. If they can do this and the IVA goes ahead, their creditors will agree to write off the part of the debt the borrower can’t afford to pay back once the IVA reaches a successful conclusion.

An IVA will affect an individual’s credit rating – which could have an impact on the cost and/or availability of credit for six years. If the borrower is a homeowner, they may be required to release equity during the final year of the agreement. This money will be used to repay more of their debt.

Debt Consolidation Loan

This involves taking out a new loan and using it to repay your existing unsecured debts (in one go). This can make a borrower’s finances easier to manage and make it easier for them to keep on top of their repayments. If you’re thinking of taking out a debt consolidation loan, you may wish to arrange to repay it over a longer timeframe than your original debts – which can lower the amount you are required to spend each month.

[editor’s note: this is a popular item when it comes to student loan repayments]

Just bear in mind that repaying a debt more slowly can add to the overall cost, due to interest. A debt consolidation loan wouldn’t be appropriate for a borrower who can’t consolidate all their unsecured debts and/or has an erratic income.

Please bear in mind…

This article is not designed to provide a comprehensive guide to an individual’s options when it comes to clearing their debts. If you’re thinking of entering a debt solution, you should speak to a professional debt adviser before committing to anything.

Any debt solution comes with disadvantages alongside its advantages – it could affect your credit rating, for example – so it’s important you are aware of these before taking the next big step to becoming debt free.

photo by jscreationzs

© 2011 – 2013, guest. All rights reserved.

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{ 2 comments… read them below or add one }

1 Debteye

I’m not sure if this post is related to UK consumers, but there are definitely a lot more options available for consumers in the United States. Debt Management Program (DMP) is a great program for consumers who can repay 2-3.5% of their debt every month. This type of program is often set up by credit counselors. However, not everyone will qualify for a DMP (if they have insufficient income) and not everyone will qualify for a debt consolidation (poor credit score).

These options touch on a few of the options that are available out there. Anyone who is struggling with their payments have their own unique situation (amount of income, assets, state of residence, etc). It’s not as easy as saying “this option is best because it offers the lowest payment and has the least impact on my credit.”


2 Justin @ MoneyIsTheRoot

Glad to see an array of options instead of just promoting one…you just dont see that too often. People in severe debt need more advice like this.


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