Do you have money problems? Struggling to pay off your loans or store cards? A debt management plan or IVA can help you. If you owe at least 2000 to unsecured creditors and you can’t afford your repayments, then this is a great way of getting you out of your debt problems. It means you don’t have to pay back 100% of the debts you can’t afford.
An unsecured creditor means one who cannot take something back off you if you can’t pay them. For example if you have a car loan then the car can be taken back, or if you have a mortgage then your house can be taken back. Debts like personal loans, store / credit cards and payday loans are classed as unsecured.
A debt management plan is an informal arrangement between you and your creditors to ensure you pay them back something rather than end up paying them nothing at all, which might happen if you went bankrupt.
It is beneficial for both parties – they get something, and you get your repayments reduced. It is managed by a third party, called a debt management company, who negotiate with your creditors to help you pay less each month. They also spread your payments out between all the people you owe money to.
An IVA is very similar to a debt plan, but they are a formal arrangement (you sign a contract) and they are managed by Insolvency Practitioners. You can also have some of your debt written off with an IVA.
Both options are excellent solutions to your money problems as long as you maintain discipline while paying back your debt.
Is a Debt Management Plan The Right Solution For Christmas Debt Problems?
The latest statistics and studies put forward that the amount of individual debt in the United Kingdom is rising. With Christmas getting closer countless specialists are warning that some consumers will have issues with their debt after Christmas once they realize how much they have spent during December.
Many individuals choose to overlook their debt concerns. They will refuse to believe that they need to take care of the difficulty thereby making it worse. For an individual in debt the best approach will always be to talk about it with a trained expert or seek the services of a debt management plan business.
Research indicates that the majority will setup a debt management plan in the first quarter of the year, and debt management plan companies also report an upturn in requests for help at this time of the year.
Can a Debt Management Plan Take Care of My Secured Debts?
A lot of people use them for covering their credit & store cards and overdrafts as these often have excessive interest rates and costs can frequently be added to these kinds of credit. They are a non legally binding arrangement so you will not be bound by any laws or rigid repayment terms.
You can’t use a debt management plan to pay your mortgage or any extra secured loans off.
I Understand I Can Set a Debt Management Plan Up Myself – Is This True?
You can actually set a debt management plan up by doing it yourself.It would require some effort on your part, though. You will be required to call up every one of your lenders as a way to negotiate better repayment terms – ones which you can practically afford. Most people choose not to do this as negotiations can often be tough and because they plainly do not have the time.
Using a debt management plan company is a popular move. One of the most important benefits of using a company is that you will have a trained professional to chat with at all times. You will no longer have to cope with phone calls and letters from your creditors – the business will do that for you.
Another significant benefit of a debt management plan is the ability to get interest and charges put at an end. A sound company should have a great deal of skill in this area which will aid them in getting a good deal for you.. Occasionally it is not possible to freeze all charges and interest – however, the company will always push for it.
An added advantage of using a debt management plan service is that they will aid you in composing a weekly budget. By budgeting every month you will be able to stay on top of your finances and grasp where your cash goes every month. Seeing each and every one of your costs and bills in black and white can be a therapeutic occurrence and by seeing these statistics in front of you, you will be able to see where to reduce on luxurious and non important products.
Starting a budget is something which you should mull over. If you don’t have one right now, then start by using a spreadsheet program – or even a notebook. Just note down your expenses like rent and living costs as well as purchases to see how much you spend monthly. If you find that you have a minus figure (i.e you spend more than you have coming in) then you are in fact getting deeper into debt each month. With interest repayments and bank fees these debts can quickly develop.
For more in-depth statistics about getting a debt management plan please see my site.
Al Ford blogs about all things financial – but mainly debt management. He aims to write informative yet practical articles. For more information and articles please see his profile.
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.
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!
Letters To Write To Creditors – Advice About Negotiating Debt Settlements
When you are deep in debt and trying to find a way out of it, one option is to see if you can reach an agreement with your creditors yourself. This is a very positive step, and is certainly better than ignoring the situation and hoping that it might go away. If you are able to reach agreements with your creditors to change the repayment terms on your debts so that they become affordable for you again, this is certainly one of the most direct ways of dealing with debt problems.
Writing letters to your creditors is the best way of negotiating, as it ensures that you can state clearly what you want to say, and makes it easy to keep clear records of what you have said and done and what their responses are. You will need to write several letters, starting off with an initial one to explain what your situation is, how you got into it and to say that you are trying to address the problem. You need to ask each creditor to confirm exactly how much money they are owed, and get them to state clearly any interest charges or late payment fees included in that.
You then need to use the information you get back to make a list of all your creditors and how much you owe to each one. Before you can write letters to your creditors again, you need to split them into two groups. In one group you put all your priority creditors, and the other your secondary creditors. Priority creditors are ones where the consequences of not paying are serious, such as your mortgage. Secondary creditors are generally unsecured debts such as credit cards, store cards and unpaid household bills.
Before you can make offers to your creditors, you need to be able to demonstrate how much you can afford, otherwise they will not know if your offer is reasonable or not. You do this by preparing a personal financial statement showing all your income and expenditure. Do not include your secondary creditors in this for now. Your financial statement will show you how much money you have left over each month to go towards your debts.
This is when you write letters back to your creditors to make offers of payment. The fairest way to do it is to share out what you have spare proportionately among your creditors. This will be the easiest to justify and defend if you are challenged over the amount. Do not be persuaded to increase your offer to one at the cost of another, and start to make the payments you have offered even if they refuse your offer. That way at least you are continuing to pay off some of the debt.
This kind of personal debt settlement can be effective, but you need to know what you are doing and be very well organised too. If you do not feel confident about taking on the process yourself, you could approach a debt management or debt settlement company to help you. They will go through your finances with you and make a proposal for a way forward that best suits your needs.
If you do decide to talk to a professional debt advisor, you should be aware that some are better than others, and that some are definitely to be avoided. To make sure you get good advice, you should only approach reputable organisations who have been in business some time, and who can demonstrate a history of successfully helping people like you. You should also approach more than one, so you can make a comparison between what they offer you.
You can find a detailed guide to negotiating with creditors on the author’s Debt UK/US Website, along with recommendations for the most reputable Debt Management Companies. K D Garrow has worked as a senior manager with significant financial responsibility for the last twenty years. His website offers free, unbiased advice on a range of debt related issues, including credit card debt settlement.
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April 29, 2012 
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