Debt is a big problem all over the world. In the UK, the average debt per adult currently standing at a massive £29,210. In the US, the average household with debt carries $15,762 in credit card debt and $130,922 in total debt. Rising debt, plus a drop in income and savings, means 2016 is a rather uncertain one when it comes to our finances.
If you’re in serious debt then a debt solution could be the way out. For some people, bankruptcy isn’t the preferred option because this route can cause long-term problems, such as issues accessing credit, losing property and getting work.
Of course, seeking out a debt solution requires a lot of consideration, so always take debt advice before you do anything. This guide outlines some of the common alternatives to bankruptcy and aims to help you work out which is the best option for you.
1. Debt Management Plan
A debt management plan is an informal repayment agreement between you and your creditors. You will agree a monthly sum and pay it back. Typically, a debt management company will manage such a plan for you. Find out more about debt management plans on this government website.
2. Individual Voluntary Arrangement
An individual voluntary arrangement, or IVA, is a formal agreement between you and your creditors. This means it is approved by the court. With an IVA, you would agree to pay off your debts over a set period of time. An IVA needs to be set up by a lawyer or an accountant.
3. Debt Relief Order
Debt relief orders are designed for people on low income with relatively low levels of debt (typically, less than £20,000). Under a debt relief order, your debt repayments and interest are frozen for 12 months. After this time, if your financial situation hasn’t changed, your debts are written off.
4. Trust Deed
Available to residents of Scotland, a trust deed is similar to an Individual Voluntary Arrangement (explained below). It’s effectively a formal repayment agreement between you and your creditors. A Scottish trust deed would see you transfer some or all of your assets (cash, property) to a trustee who would manage them for your creditors. You would pay a single monthly payment to the trustee. Find out more about trust deeds from Trust Deed Scotland.
If you are in real dire straits and cannot afford to make any payments towards your debts whatsoever, one option is to try and get them written off. To do this, you would have to formally ask your creditors if they would be prepared to do it. Obviously, it is highly unlikely that they would. You can find a template letter for requesting a write-off for your debts.
6. Last Resort – Bankruptcy
Bankruptcy should be regarded as a final option. Bankruptcy sees an official receiver take control of your assets. Note that these assets could be sold to pay your creditors. You will also have to follow certain bankruptcy restrictions and details of your bankruptcy will be made publicly available. Remember that bankruptcy could affect your employment and access to credit.
Keeping On Top of Things Day-to-Day
With the possibility of the Bank of England raising interest rates later this year, families and individuals need to prepare themselves to properly manage their finances. We’ve added some simple ways you can keep on top of your money.
- Assess whether you’re paying for anything you’re simply not using (Netflix, etc).
- Start signing up for loyalty and reward programs to get vouchers and deals.
- Sell anything you no longer use.
- When going to the supermarket, write a shopping list and stick to it.
- Avoid fast food – it’s expensive.
- Head to charity shops for bargains.
Falling into debt is not a situation anyone wants to find themselves in. But, know that it need not be the end of the world. With a number of debt solutions available, there’s every possibility you’ll find something that changes your financial situation for the better.
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