If you are in a lot of debt, then there are two solutions to help you get back on your feet and these are bankruptcy or an IVA (Individual Voluntary Arrangement).
Bankruptcy is a decision that should not be taken lightly though as there are certain consequences when you declare yourself bankrupt. You will need to be prepared to lose certain valuable personal possessions in order to help pay off the debt. You will have to go to court and your money problems will become public knowledge and this can often be stressful time.
As well as losing material items, you also lose the right to be the director of a company, a member of parliament, a member of local authority or a lawyer.These factors need to be taken into consideration, especially if you dream of one day owning your own business.
If you become bankrupt then you will find it difficult to obtain credit in the future. Your credit history will stay with you for many years and simple things that you will have taken for granted in the past such as taking out a mobile phone contract agreement may prove impossible.
An IVA is a formal agreement with your creditors where you make reduced monthly payments and generally after five years, the rest of the debt is cancelled. This is a way of paying off up to 65% of your debt at a sensible rate and you will not have any privileges or possessions taken away from you. It is a private arrangement so no one but yourself and the people that you owe money to need to know about the IVA if you wish to keep it that way.
Bankruptcy is a quicker way out of debt, but you should only choose this option once you have thoroughly weighed up all the pros and cons as you cannot reverse it. An IVA will take longer to get yourself out of debt, but you have more control and it is kept private.
These days most people have some level of debt and usually manage to make regular payments, with few problems arising from it. It’s how we manage our finances and providing we borrow responsibly, a small level of debt can be built into most people’s budget. A personal loan can help when unexpected expenses – such as emergency car repair or breakdown of a kitchen appliance – arise. We can easily repay these, usually by setting up a direct debit or standard order directly from our current account.
Gone are the days when people saved up for a holiday, car or even a new TV set. We prefer to calculate the monthly payments and buy the product straight away. Sometimes we spot a fantastic never-to-be-repeated bargain. This is fine as long as we can reasonably afford the item and don’t become too greedy when we see other expensive items which we want.
However, when problems arise, such as redundancy, illness, or breaking up with a partner, the level of debt on credit cards or loans can appear quite alarming. In these circumstances it’s important to keep on top of finances and contact your creditor straight away, informing them about what is happening. If kept informed most financial firms will do their best to help by either reducing payments temporarily, or allowing you to take a payment holiday.
Sometimes relatives will happily help out with family debt. Lending from parents, for example, can be a great idea as they are usually quite flexible about repayments. They rarely charge interest and are often quite easy about when the debt needs to be repaid. It’s best though not to take advantage of their good nature and attempt to make regular repayments
Check your bank and credit card statements regularly and ensure all transactions are correct. Don’t just push statements in a drawer unopened, being too scared to look at the balance. The most important thing is to keep on top of how much money you owe along with the current interest rate of your loan(s).
If your credit rating is good you may be in a position to transfer existing debts to a new credit card with 0% interest rate. This is a good idea if you will be able to repay the loan within the specified period (6 or 9 months usually), and are responsible enough not to spend on the card. Otherwise the interest rate on this type of card can become alarmingly high.
If you find yourself regularly unable to meet existing loan payments, it’s best not to panic. Consult the Citizens’ Advice Bureau which has debt counsellors who will help you to sort out your existing commitments, and advise accordingly. They will even negotiate with your creditors and try to work out repayment plans suitable to both parties.
However, as long as we behave responsibly, a sensible level of debt can be built into most budgets. Most families would find it difficult to live without the occasional loan, especially now as Christmas is almost here.