Options to get out of Debt
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As explained, one option is to work out your budget and make a realistic offer to pay as much as possible off your debts on a regular basis. However, you may want to consider the following alternatives. The important thing is to identify where you went wrong previously and take care to prune your personal budget so all repayments and expenditure can be met from your income. If not you are only swapping one problem for another.
One move worth considering is to cut up any credit cards and rely on debit cards or cash so spending has to stay within the limits of what income is available.
Sometimes you can obtain one unsecured loan to repay all your other debts and leave yourself with a smaller amount to pay regularly.
You must think very carefully about this before committing yourself and make certain you are not going from crisis to crisis. If you are simply deferring the inevitable it is not worthwhile.
Taking a higher mortgage on your home and using the balance to repay your unsecured debts may seem like a good idea. However, it will only work if you cut up your credit cards and make sure you do not run up any further debts. Remember you are then putting the roof over your head at risk.
This is exactly the same as a remortgage because a secured loan is tied to your home and you could be forced to leave in order for the debt to be repaid if you were unable to keep up repayments.
It can be difficult to deal directly with creditors without outside help. They will be persistent in trying to get their money and you will need to keep them regularly informed of your situation.
There are both charity (free) services and commercial organisations who will provide help in dealing with your creditors. This may mean that you pay just one amount a month to the debt management companies and they arrange for all your creditors to get a share.
This does relieve some of the pressure of dealing with creditors but do not forget that commercial organisations will charge a fee for doing this. As a result you will take longer to repay your debts. Charitable organisations also provide direct help and can deal with your creditors on your behalf, organising a repayment programme. Alternatively they can supply a self-help pack. It is important to realise that even if you have agreed a debt repayment programme with your creditors, they may still register you as defaulting with the credit reference agencies which may affect your ability to get credit – or even a mortgage – in the future.
If you have substantial amount of debt an IVA is an arrangement that you make with your creditors as an alternative to bankruptcy. In exchange for the creditors accepting regular payments – often with guarantees that they will continue for a set number of years – they agree not to pursue bankruptcy. You need to consult with an expert before taking this course of action but it is important to note that all your assets will be taken into account when such an arrangement is being considered. Click here for Individual Voluntary Arrangement, IVA advice
Many people think this is an easy way out of debt because you can end up paying only a tiny fraction of your debts and have the remainder “ written off.” However, there is a great deal of stigma involved in bankruptcy and it can have a serious effect on your future – for instance having to declare the fact when applying for credit in the future or even on some applications for jobs, work permits and overseas visas. In addition all your assets are effectively thrown into the pot when you are made bankrupt. There have been cases where people have lost their home years later. Although there was no equity in it at the time of the original bankruptcy, it can be sold at a later stage and the balance of the proceeds after repaying the mortgage used to boost the amount creditors ultimately receive.
If you have a County Court Judgment (CCJ) you may be able to apply for one of these which is a way of putting together many debts within the County Court system and making one payment to Court. The administration order is only available if the total debts involved are less than £5,000 and if you are not a homeowner. You should contact your local County Court for information and an application.
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