Debt Clear Direct

Debt advice played an important part in the Chancellors Pre-Budget report, revealing just how important the Government thinks it is for people with debt problems to seek debt advice earlier, rather than later.

On direct.gov.uk, the section Debt advice services is one of only three sections on the helping people in financial difficulty page. The section states that: The government is committed to ensuring that any family facing debts which they cant manage can access free impartial debt advice to help them get back on track.

It also says that The Pre-Budget Report announced additional government funding of 5.85 million for an extension of telephone advice services, and 10 million to extend face-to-face advice services, to ensure everyone has access to free debt advice when they need it.

Whatever the economic climate, debts can always be a problem if the borrower cant keep up with the repayments. In other words, debt advice always has an important role to play, helping people learn to budget, negotiate with their lenders, plan ahead and one day get out of debt altogether.

At a time like this, however, with the threat of deflation hanging over the economy and the threat of unemployment hanging over many individuals debt advice is more vital than ever. Already, borrowers everywhere are finding their budgets stretched to the limit: any decrease in their income could easily push them over the limit.

In other words, now is for many people the time to start really working on paying off their debts. Some people, like bankers and estate agents, were hit by the economic troubles last year. Others are worried about their job security in the near future. Still others are working in industries which so far dont seem to have been hit by the countrys economic problems, but which could be eventually. But whether theyre worried about coping with a lower income in six months or in two years, their debt could be much easier to deal with if they can pay off as much as possible in the meantime!

Which explains why the Government is spending over 15 million extra to ensure people can access the debt advice they need. However, the Government-funded services are by no means the only ones providing debt advice. Various companies also provide free debt advice and debt help.

Many of those companies also provide websites that contain all kinds of debt advice. This kind of online debt advice can be helpful, providing people in debt with anything from do-it-yourself guides and budget forms to useful addresses and phone numbers.

Even so, its no substitute for the personalised, back-and-forth debt advice that can only come over the phone or face-to-face. Basically, everyones debt problems are different, and the best way of tackling them is to talk to someone who knows what questions to ask so they can build up a complete picture of their debt situation and advise them on the best course of action, whether that means a professional debt solution or just a few lifestyle changes.

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by Ed Yourdon

Debt Consolidation Loan Facts

We are suffering the most dreadful economic climate in living memory. The writer of this article has been involved in the finance industry for twenty five years now, and has never seen the industry in the state that it is in at present. Lending and borrowing is an essential of a healthy economy, and if sensible lending practices are in place the economy can grow once more. There is simply not enough people wanting to borrow at present, and this is mainly due to the fact that most people really do not seem to realize that there are funds available.

People are struggling to pay their credit cards, personal loans and hire purchase simply because they do not know that there are lenders in the market who would be only too glad to help these individuals by granting a debt consolidation loan.

We constantly have newscasters on television stating that there are no funds available for borrowers, and in fact this is not the case.

It is certainly true that some lenders have completely withdrawn from the market, or only have funds available to grant further advances to their existing customers, and are not accepting any new borrowers.

It is also a correct fact that criteria has tightened up, and that many loan products which were available before the credit crunch no longer exist. It was in fact mainly due to the very lax underwriting of these products that the economic crisis occurred. These were such things as the 100% LTV plan which meant you could borrow up to 100% of the value of your property.When property prices fell this had disastrous consequences for the lender if the borrower defaulted.

A very risky lending practice was the 125% equity plan.

This meant that if you had a house worth 200,000 , 25% of that amount, namely 50,000 could be added to the value, and therefore if you had a mortgage of 190,000, in theory you could borrow up to 60,000. This form of loan seems foolhardy at the best of times, but a disaster waiting to happen if property prices fell which they in fact have.

However in spite of the withdrawal of many products there are still debt consolidation loans for homeowners readily available. The starting interest rates at present for a debt consolidation loan for a homeowner is about 8% APR which compared to your credit card rates of 20% or even much higher affords an enormous saving. If you have a number of debts, a debt consolidation can half your monthly outgoings.

consolidation loan

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Why do we borrow? Cars, holidays, TVs, home improvements the reasons might vary, but all loans mean we end up owing more. Or do they?

Debt consolidation loans stand out from the crowd. Unlike other loans, theyre designed to help people deal with the debt they already have. So theyre fundamentally different to other kinds of loan.

The principle is simple: borrowers consolidate their debts by taking out a new loan large enough to pay them all off. This can deliver three benefits in particular.

Benefits of consolidation
First of all, repaying one loan is simply easier than repaying many. Rather than juggling multiple debts paying different creditors different amounts at different times the borrower can just make one monthly payment. Since its easier to manage, the borrower is far less likely to make payments late (or not at all!), which can lead to anything from penalty charges to higher interest rates, and which always looks bad on a credit rating.

Second, theres a good chance the new consolidation loan will come with a lower interest rate, especially if its used to pay off high-interest debts like credit / store cards and overdrafts.

Third, a consolidation loan gives the borrower a chance to think carefully about repayment terms. If they couldnt keep up with repayments to their old debts, it might make sense to pay back the consolidation loan over a longer period of time. Itll mean they stay in debt for longer (and perhaps cost them more in the long run), but itll reduce their monthly payments, and sometimes thats the most important thing.

Drawbacks of consolidation
However, there can be drawbacks to debt consolidation.

First, as mentioned above, paying a debt back more slowly means itll take longer gathering interest, so the total amount repaid can be higher.

Second, consolidation loans unless handled carefully come with a very real danger. When someone uses the loan to pay off their debts, they have to be very careful not to run up fresh debts (particularly tempting on credit / store cards and overdrafts, since they make it all too easy to borrow a few pounds here and a few there). So in general, debt consolidation is a solution thats suitable for people who are confident in their ability to say no to fresh credit. Anyone who isnt confident could well be better off with a different debt solution.

Alternatives to consolidation
Either way, its always important to talk to a debt adviser who understands the full range of available solutions, such as debt management plans, IVAs (Individual Voluntary Arrangements), Trust Deeds (for residents of Scotland) or even bankruptcy. Each solution is unique, and its benefits and drawbacks can affect different people in very different ways which is why its so important to talk to an expert first.

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Why choose debt management? Some debt solutions seem to offer a lot more for a lot less, so why would anyone select a solution that doesnt promise an easy way out?

With debt help, as with anything else, if it sounds too good to be true, it probably is. There is no easy way out of debt. Debt is a real problem and as such deserves a realistic solution. If someone owes money, their lenders are going to do their best to recover it. Wouldnt you?

Why do lenders agree to debt management?
The best way of recovering a debt varies from case to case. In their line of business, lenders will understand that theres a limit to how fast someone can repay their debt, and that this limit is different for every person.

So lenders tend to be prepared to renegotiate repayment terms when this is clearly the best way forward. They will, however, expect a certain degree of cooperation, organisation and effort from borrowers in return. This is where debt management comes in.

Debt management what the company does
Lower monthly repayments. Frozen interest. Waived charges. In general, these are the three main financial benefits a debt management company will try to negotiate on behalf of their client. Theres no guarantee theyll succeed, but it may be fair to assume an experienced debt management professional stands a better chance than the average borrower.

After all, a debt management expert will know what kind of terms most lenders will agree to in specific situations. Theyll be able to help their client draw up a budget that shows their income and outgoings, so they can provide lenders with tangible, credible facts and figures. Furthermore, a debt management company should be able to propose repayment plans that strike borrower and lender alike as fair and realistic.

Aside from the practical advantages, such as the (hopefully) higher chance of success, theres also the emotional benefit of working with a debt management company: borrowers can be embarrassed, confused or even angry about their debts, and can find it very hard even to talk to their lenders, let alone come to an agreement with them.

Debt management what the borrower does
Make no mistake. Debt management is not an easy option for borrowers. If theyre to agree to new repayment terms, lenders will expect the borrower to cut back on all non-essential spending to maximise their repayments. And once those new terms have been agreed, lenders may be prepared to renegotiate, but only in cases of genuine financial hardship if they feel the borrower simply isnt living up to their side of the agreement, they may feel they have to pursue other action, which could be anything from contacting the county court to trying to make the borrower bankrupt.

As long as the borrower sticks to the agreements, however, a debt management plan can be an excellent way out of debt. Potential lenders in the future will see that theyve had problems making debt repayments, but that theyve tackled those problems head-on, entering a debt management plan that helped them repay those debts at a sensible, affordable rate.

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Why has debt consolidation become such a common phrase nowadays? Unfortunately, the answers straightforward its because debt has become a way of life for so many. Its a sorry reality for even the youngest adults in our society, as illustrated in a recent publication from Rainer, the national charity for under-supported young people.

Published in May 2008, the report looks at credit, debt and other financial issues confronting todays youngsters. It picks apart some of these challenges and, drawing on the direct experience of the young people facing them, sets out the action required to overcome them.

Unavoidable route into debt
Joyce Moseley, Rainers Chief Executive, talks of the often unavoidable route into debt. On Rainers behalf, research and consulting organisation YouGov found that 90% of the young people questioned were in debt by the age of 21. One in five 18-24 year-olds had already found themselves more than 10,000 in debt.

As they start their adult lives, most young people find themselves with very little disposable income anyway, so once debt repayments start taking a slice, its all too easy for their finances to deteriorate rapidly. This goes a long way towards explaining the popularity of debt consolidation loans among young people

Consolidation a route out of debt
For many young borrowers, the most important benefit of debt consolidation is simply a reduction of monthly outgoings. Replacing multiple debts with a single consolidation loan gives them a chance to arrange affordable repayment terms. This can mean the debt will take longer to pay off and possibly cost more in the long run but cost less each month.

At the same time, a consolidation loan may well come with a lower interest rate than the debts theyre paying off, especially if theyre high-interest debts from (for example) credit cards, store cards and overdrafts.

Consolidating debt also makes it simpler to manage. Remembering one payment per month is much easier than remembering five. Lenders often issue penalty charges for late / missed payments, so a consolidation loan can actually help people keep their debts from growing.

Consolidation do it the right way
However, there are risks involved with debt consolidation. When someone pays off their debts (overdraft, credit / store cards, etc.), they have to be careful they dont let these debts start growing again. In fact, its often a good idea to cancel cards and overdraft facilities, since its all too easy to borrow a bit here and a bit there until theyre in a worse situation than they were before they consolidated their debts theyll have to make payments to the consolidation loan every month as well as to the new debts theyve run up!

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