People with financial problems may suffer from a lot of stress and worry. Even if their financial outlook is just a little worrying right now rather than a real concern, this can cause a lot of problems in their lives. Knowing how to get out of debt is probably the hardest thing in this situation. Many are aware that there are various debt management solutions that might help them. But, many also don't know which one to choose. Let's take a look at some of the most common options.
Get Debt Consolidation Help
Debt consolidation is a popular choice for a lot of individuals who want a way of bringing their debts under control again. This solution involves moving current debts into one new debt. So, for example, many people will take out a personal loan which they will then use to pay off all their existing debts. This may give them lower repayments and may help them cut down on problems with high interest charges. Having one repayment to make every month may also make it easier for them to manage their finances. A debt consolidation calculator can be a quick way of assessing whether this solution will work.
Debt Management Programs May be an Option
Debt management programs are informal solutions that can be set up by the individual on their own behalf or with the help of an advisor or a specialist company. This solution involves talking to the people to whom money is owed (i.e., the creditors) with a view to coming to an arrangement with them to repay what is owed on a more affordable basis. This may involve them accepting lower repayments, freezing interest and even writing off some debts in a few cases. The individual will then have one monthly payment to make which is shared between their creditors.
Consider IVAs (Individual Voluntary Arrangements)
IVAs are a formal debt management solution. An individual considering this route will need the help of an Insolvency Practitioner to apply for, set up and manage their IVA. They will also need the agreement of their creditors (or a specific percentage thereof) to take this route. Often considered as an alternative to bankruptcy an IVA will last for six years. During this time the individual will pay back what they have agreed every month. Anything left owing at the end of the six years will be written off. This solution may make it easier to hang on to assets such as the individual's home.
What are Debt Relief Orders (DROs)?
Debt Relief Orders were set up by the Government to help people on lower incomes to find a better way to manage their debts. A DRO works like an IVA in that individuals take it out for a specific period of time during which they may need to make some debt repayments if their financial circumstances change. This solution will, however, usually only last for around 12 months. At the end of the term all remaining debts are, once again, written off.
Is Bankruptcy a Good Solution?
Bankruptcy may seem one of the easy ways to get out of debt but it is also potentially one of the most serious solutions to take. Most bankruptcy proceedings will last for a year and will involve the sale of assets (including potentially the home) to raise money to repay as much of the debt owed as is possible. At the end of the term the individual will be debt free.
Advice on How to Get Out of Debt
Not all of these solutions will suit every individual. Some may find that more than one option will look like a potentially good deal and may not know which route to follow. There are also other issues to consider including whether the individual's credit rating will be impaired by the action that is taken.
It is always worth taking some impartial debt management advice before choosing an appropriate solution. Knowing when it is time to get debt help is also important. The earlier action is taken, the easier it may be to sort problems out.
Source: Directgov
Carol Finch - Carol Finch is the Topic Editor for Retirement Planning, Budgeting, E-Commerce & Technical/Business Writing on Suite101.
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