There are different debt solution options. Use the information below to help you decide which is right for you.
- Debt Consolidation
- Debt Management Plan (DMP)
- Individual Voluntary Arrangement (IVA)
- Administration Order
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Some of the solutions below are only available in England, Wales & Northern Ireland. If you live in Scotland there are different options available to you.
Debt Consolidation is simply the act of paying off debts with one large loan. It can be achieved using a secured or unsecured loan or by releasing equity from a property by remortgaging.
You will normally only qualify for a consolidation loan if you have a good credit rating. If your credit rating is poor it is unlikely that you will be able to borrow more. As such this option may not available to you.
Debt Consolidation is the only debt solution which will not negatively affect your credit rating.
If you plan to consolidate you must make sure you can afford the new loan payments. If you are unable to borrow enough to consolidate all of your debt or the new monthly payments are more than your disposable income you risk making your debt problem worse.
Debt Management Plan (DMP)
The Debt Management Plan (DMP) is the most commonly used debt solution. It is an agreement to reduce your debt payments to an amount you can more easily afford.
The agreement is not legally binding which means it is flexible. You can implement the Plan yourself and you rarely have to prove your income or living expenses. You can also stop and change to a different solution at any time
If you are a home owner you do not have to involve your property in a DMP.
However creditors do not automatically agree to write off any of your debt. In addition they do not have to freeze additional interest charges. As a result it often takes many years to become debt free using this solution.
Why not use our Debt Solutions Comparison Table to compare the options open to you.
Individual Voluntary Arrangement (IVA)
An Individual Voluntary Arrangement (IVA) offers the opportunity to write off debt you cannot afford to repay. As with a DMP it allows you to reduce your debt payments to an affordable level. However it lasts for a fixed period.
The length of the Arrangement is normally 5-6 years. After this given you have met your obligations within it any outstanding debt is written off.
You are required to live within a restricted living expenses budget. If you do not maintain your agreed payments the arrangement will fail. In addition if you are a home owner you will be obliged to release equity from your property.
Bankruptcy & Debt Relief Order (DRO)
Despite what you may think for many people Bankruptcy can be an extremely good debt solution. It will mean all of your unsecured debts are taken away from you and written off.
Once you are bankrupt you will not have to make any further payments towards these debts unless you can afford to do so. However unlike the other debt solutions there is an up front cost.
If you are a home owner your property might be at risk if you go bankrupt. However this will depend on the amount of equity in it.
If you have debts of less than £20,000, are renting your property and have little or no disposable income you might qualify for a Debt Relief Order. This will provide the same advantages as bankruptcy but the fee is much smaller.
The Administration Order is probably the least used debt solution. This is partly due to the fact that it is only available if your debt is less than £5000. Also a County Court Judgment (CCJ) must already have been issued against you.
Unlike solutions such as Bankruptcy and a DRO you still need to be able to make a payment towards your debt each month. This is normally made for three years after which any outstanding debt is written off.
Given the requirement to make payments people who consider using an Administration Order normally end up choosing a Debt Relief Order.
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