Debt Clear Direct

What Debt Help is Available?

‘Debt help’ can mean many different things – a debt specialist may be able to suggest various ways you could tackle your debt problems. If you are looking for debt help, it is important that you understand your options before you decide what action to take.

Debt advice

This could be all you need to help you get your finances under control. Various organisations offer free debt advice, such as help with budgeting, or information about which debts are priority and which are non-priority.

When you contact a professional debt adviser, they should be able to offer you advice on where you can improve your financial situation now, and how you could keep it under control in the future.

They may also offer advice on whether a debt solution could help, and if so, which one may be best for you.

Debt management plan

A debt management plan might be suitable for you if you cannot make the agreed repayments towards your unsecured debts. Debt management involves negotiating with your unsecured creditors, asking them to accept lower monthly payments, based on your current disposable income (income minus essential expenditure).

You can ask a debt management organisation to act on your behalf, or do the negotiations by yourself.

Debt management plans can be flexible, which means that if your financial circumstances deteriorate and you start finding payments difficult to make, then you or your debt adviser may be able to re-assess your situation and negotiate with your creditors again, asking them to accept lower monthly repayments.

However, creditors are not legally obliged to accept any changes to the original repayment plan – nor are they legally obliged to stick with them if they do.

Plus, when you enter a debt management plan, you are defaulting on an original agreement. This will be shown on your credit rating for 6 years, which could affect the cost/availability of credit for that time.

Be aware that you will be paying your debt off for longer if you reduce your monthly repayments. It may also mean you end up repaying more than you originally expected – this is due to the interest added to your debt each month.

Debt consolidation

If you would like to turn multiple debts into one manageable debt, then debt consolidation may be right for you.

It works by taking out one loan which will pay off the money you owe to your existing creditors. This means that you will now have one monthly payment to make instead of several.

A debt consolidation loan can also let you reduce your monthly payments by repaying the loan more slowly than you would otherwise have repaid your debts. However, this may mean you end up paying more overall due to the interest.

Note: Debt consolidation loans would not be suitable for people who don’t think they can commit to making the loan repayments as well as keeping up with their other commitments.

IVAs (Individual Voluntary Arrangements)

An IVA is a formal agreement between borrowers and their creditors. They are designed to give the borrower an affordable way out of debt, and are often seen as a preferable alternative to bankruptcy.

An IVA may be suitable for you if:

1. Your unsecured debts total around 15,000 or more.

2. You don’t think you can repay your debts in a reasonable amount of time.

3. You want to avoid the risks of bankruptcy, such as losing your home.

The IVA must be accepted by 75% of your creditors (by debt value – creditors who collectively ‘own’ 75% or more of your debt), before it can go ahead. If it is accepted, the agreement will last (in most cases) for 5 years. Once the IVA has ended, any remaining unsecured debt will be written off.

If you can commit to regular fixed monthly payments, then your creditors will allow you to make lower monthly payments, based on what you can actually afford. When entering an IVA, all interest charges are frozen, which means you will know exactly how much you will repay (as no interest is added each month).

However, IVAs also have their drawbacks. For example, it will remain on your credit report for one year after completion, which may make further credit difficult/more expensive to obtain. Plus, if you are a homeowner, you may be required to release some of the equity you own in the 54th month of the agreement. This is so you can repay more of your debt.

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Getting debt relief is sometimes too complicated. Even after consolidating your debt through a debt consolidation agency you may end up with monthly payments too difficult to afford that wont leave space for unexpected expenses. However, by combining Debt Consolidation with Mortgage Refinancing you can achieve debt relief to an unbelievable extent.

The usual means for reducing debt exposure is contacting a consolidation agency or negotiating debt yourself. Debt consolidation implies contacting lenders and agreeing with them new repayment programs with lower monthly payments. This result can be achieved either by reducing the amount of money charged on interests or by extending the repayment schedules.

Debt Consolidation

The procedure is simple enough: Either you or the agent assigned to your case by the consolidation agency contacts each of your creditors and tries to convince them of the advantages they will get if they agree to lower your monthly payments. Sometimes in order to obtain their money sooner the lenders agree to a cut on the overall debt including capital and interests. In many casesdebt consolidation agencies have obtained up to a 65% reduction of the debtors outstanding loans and credit card balances.

Once the negotiation process is completed; your debt expenses will be greatly reduced. However, sometimes the procedure is not enough and you may not be able to afford the monthly payments. At this stage, some debt consolidation agencies offer a debt consolidation loan with a longer repayment program. You just pay this single monthly installment to them and they take care of your loan payments and bills.

The problem is that in certain situations there is too much debt that is non-negotiable. Typically, federal student loans and some private student loan programs, home loans, home equity loans and any other form of secured loan is too hard to negotiate because the lender is comfortable knowing that he can legally claim your property in case you fail to repay the loan.

Refinancing

One would think that refinancing would only solve the problem with your home loan, but truth is that by taking advantage of cash out refinance loans you can request a higher loan amount than the amount of your current mortgages remaining debt and use that extra money to cancel other non-negotiable debt.

This procedure will not reduce your debt but will reduce your income/spending ratio because by refinancing youll be able to spread your debt into a longer repayment program reducing the amount of your monthly payments. Since by applying for a cash-out refinance loan youll get actual cash, you can use it for prepaying outstanding debt, but be careful to repay those loans that dont have prepayment penalties first; that way youll save even more money.

The only difficulty that this method presents is that you need to have enough equity on your home in order to obtain a cash-out refinance loan. If a home equity loan is part of the debt you need to repay, chances are that you wont be able to use this system. However, there are some lenders offering up to 135% financing at slightly higher rates. If there is no other choice, you can resort to them.

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by Hamed Saber

What debt help is available?

There are several different types of debt help available to people struggling with their finances. If you are in debt, the choice can be confusing or even intimidating, so it’s important to understand each option before making any firm decisions.

Debt advice

A little debt advice may be all you need to get your finances back on track, and many organisations will offer free debt advice – budgeting tips, for example, or help negotiating with creditors.

When you speak to a professional debt adviser, they should be able to suggest ways you can improve your financial situation now and look after it in the future. They should also be able to advise you on whether or not you require a specific debt solution, and if you do, which one may be most suitable for you.

Debt management

Debt management may be suitable for you if you can’t make the agreed repayments to your unsecured debts. It involves talking to your unsecured lenders, asking them to accept lower monthly payments based on what you can afford after your essential expenses (mortgage/rent payments, utility bills, etc.) have been covered.

Some people will negotiate with their lenders by themselves, while others will ask a debt management organisation to do it on their behalf.

By reducing the cost of payments to your unsecured debts, debt management should also mean you’re able to stay on top of payments to your essential expenses every month.

Please bear in mind, though, that creditors aren’t obliged to accept any changes to the existing repayment plan.

It is important to note that by reducing the amount you pay each month, you will be paying your debt off for longer. This could result in you paying more overall, due to the interest added to your debt on a monthly basis. However, lenders may agree to a freeze or reduction in interest.

By repaying your debts more slowly, you will be defaulting on your original repayment agreements. This can be recorded on your credit report, which could affect the cost and/or availability of credit for 6 years. Bear in mind, though, that this may happen anyway if you can’t keep up with the payments you originally agreed to.

There are several different types of debt help available to people struggling with their finances. If you are in debt, the choice can be confusing or even intimidating, so it’s important to understand each option before making any firm decisions.

Debt advice

A little debt advice may be all you need to get your finances back on track, and many organisations will offer free debt advice – budgeting tips, for example, or help negotiating with creditors.

When you speak to a professional debt adviser, they should be able to suggest ways you can improve your financial situation now and look after it in the future. They should also be able to advise you on whether or not you require a specific debt solution, and if you do, which one may be most suitable for you.

Debt management

Debt management may be suitable for you if you can’t make the agreed repayments to your unsecured debts. It involves talking to your unsecured lenders, asking them to accept lower monthly payments based on what you can afford after your essential expenses (mortgage/rent payments, utility bills, etc.) have been covered.

Some people will negotiate with their lenders by themselves, while others will ask a debt management organisation to do it on their behalf.

By reducing the cost of payments to your unsecured debts, debt management should also mean you’re able to stay on top of payments to your essential expenses every month.

Please bear in mind, though, that creditors aren’t obliged to accept any changes to the existing repayment plan.

It is important to note that by reducing the amount you pay each month, you will be paying your debt off for longer. This could result in you paying more overall, due to the interest added to your debt on a monthly basis. However, lenders may agree to a freeze or reduction in interest.

By repaying your debts more slowly, you will be defaulting on your original repayment agreements. This can be recorded on your credit report, which could affect the cost and/or availability of credit for 6 years. Bear in mind, though, that this may happen anyway if you can’t keep up with the payments you originally agreed to.

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• What to do to get proper debt help?
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