Debt Solutions
Debt Solutions
Deciding which debt solution is the most suitable for you is extremely important.
In fact, it's the most important decision you'll have to make in your journey to becoming debt free, because there's no doubt that using the wrong debt solution will cost you time and money.
So which debt solution is the correct one to choose?
Which Debt Solution?
Imagine the journey to debt freedom is the same as any other journey. You have to pick the most suitable vehicle to get you to your destination as quickly, as safely and as economically possible.
But it's only once you understand where you are, in financial terms, that you'll be able to work out which vehicle is best to get you to where you want to be.
It sounds obvious, but the first thing you need to do is analyse your financial situation, to find out where you are.
We can help
IVAorg CIC are professional debt advisers who specialise in helping people understand their financial position.
If you would like to have a free, 'no obligation' consultation call us on 0800 088 7502 where a professional debt adviser is waiting to speak to you.
And, once you have a clear understanding of your financial circumstances, we will assist you in selecting which debt solution is the most appropriate for you by making sure you understand the pros and cons of each.
If you're not quite ready to talk to someone, don't worry, use our Debt Calculator to point you in the right direction.
What Debt Solutions Are There?
There are 2 fundamentally different ways to approach a personal debt problem.
Firstly, there are the 'none borrowing' options, listed below, which break the cycle of borrowing money to get out of debt.
None Borrowing Options
- Debt Management Plans (DMPs) All debt levels.
- Individual Voluntary Arrangements (IVAs) Debt levels above £10,000, England, Wales & Northern Ireland only.
- Protected Trust Deeds (PTDs) Debt levels above £10,000, Scotland only.
- Debt Arrangement Scheme (DAS) All debt levels, Scotland only.
- Debt Relief Orders (DRO) Debt levels below £30,000. England, Wales & £20,000 Northern Ireland.
- Administration Order (AO) Debt levels below £5,000, England, Wales & Northern Ireland only.
- Bankruptcy All debt levels. Also known as Sequestration in Scotland.
Debt Management Plans (DMPs)
Debt Management Plans fill a very useful requirement within the whole debt solution portfolio. They are especially helpful to people whose debt problem is short term, perhaps due to unemployment or illness.
However, they do not tend offer a practical solution to people with longer term debt problems. The effectiveness of a DMP will, therefore, depend largely on the size of the debts and the size of the monthly repayments. DMPs don't offer any debt forgiveness, therefore they will continue, indefinitely, until the whole debt has been repaid. Read more.
Individual Voluntary Arrangements (IVAs)
An IVA will help people who have built up debts of over £10,000 to 2 or more creditors and find themselves unable to afford their normal monthly repayments. The IVA option is particularly appropriate when someone has a large asset or a property they wish to protect, or a profession that might be put at risk by the bankrupt process.
An IVA is a fixed term agreement and any original debts left unpaid on the successful completion of the IVA must be legally written-off by creditors. This means you may not have to repay your whole debt. Read more.
Protected Trust Deed (PTDs)
Protected Trust Deeds are the Scottish equivalent of an IVA, and are often referred to as Scottish IVAs. Only available to people living in Scotland, a PTD can help with debts above £10,000 owed to more than 2 different creditors.
A PTD acts as an alternative to Sequestration, the Scottish name for bankruptcy. Like an IVA, it freezes interest and stops charges being added to the debts. A PTD has a fixed repayment term, after which all outstanding debts are legally written-off. Read more.
Debt Arrangement Schemes (DAS)
Debt Arrangement Schemes are debt payment plans provided by the Scottish government, but run through private companies. They are not the same as DMPs.
They enable people living in Scotland and struggling with debt problems to make reduced contributions to their creditors. Unusually for a Debt Management Plan, the DAS provides a guarantee to freeze interest and stop legal action whilst the DAS is active. There is no set time limit for a DAS to run, so long as the applicant can expect to repay all their debts within a reasonable time.
Debt Relief Order (DRO)
This debt solution is the most recently introduced, being introduced on April 6th 2009. Debt Relief Orders have been designed to help people with less than £30,000 of unsecured debts that have no assets above £2,000, do not own their own home and have less than £75 per month available to deal with their debts.
Debt Relief Orders last 12 months and on completion all outstanding debts are written-off. A 'one-off' administration payment of £90 is charged, with no further contributions being made. Read more.
Administration Order (AO)
Administration Order provide help for people with 2 or more debts totalling less than £5,000, who have received a County Court Judgement against them.
The Order enables the debtor to make payments for the debts, based on proven affordability, directly to the Court. The court then distributes the payments to creditors on a pro-rata basis, after taking an administration fee of 10% for their work. Read more.
Bankruptcy
Which is, in most people's eyes, the debt solution of last resort.
When you petition for your bankruptcy you will be required to hand over your assets and control of your financial affairs to the official receiver (OR), whilst they assess your ability to repay your creditors.
You will be required to repay to your creditors whatever it is deemed you can afford each month, for up to 3 years and any assets you own will be sold for the benefit of your creditors.
It is worth bearing in mind not all types of debt are written off in bankruptcy so you should take professional advice before declaring yourself bankrupt, in order that you are fully informed of the bankruptcy process, its powers and the impact it will have on your personal circumstances. Read more.
Borrowing Options
Secondly, there are the borrowing options. Borrowing options usually rely on borrowing money over a fixed and, sometimes, longer period of time, but at a lower monthly cost.
Reducing the monthly expense of your debt by restructuring it is called debt consolidation.
- Consolidation Loans:
- Unsecured Consolidation Loans - Debt levels up to £25,000.
- Remortgage Loans - All debt levels - Homeowners only.
- Secured Loans - All debt levels - Homeowners only.
Unsecured Consolidation Loans
Consolidation loans enable a person's debts to be brought together under one new lower payment.
As a debt solution consolidation loans have only limited ability, as the size of the required loan may be beyond the reach of the applicant. It should also be mentioned that taking out a consolidation loan, without addressing the underlying financial problems, might lead to a larger debt problem in the future. Read more.
Remortgages
Remortgaging a property is a familiar method of consolidating debt for most property owners. Releasing equity from a property has, in recent times, become more difficult, nonetheless, it still offers a practical solution for those homeowners with good credit ratings.
By releasing equity via a remortgage, the cost of expensive unsecured debts can be significantly reduced.
There is, however, one important aspects you should consider before remortgaging - that whilst cheaper in the short term, you will probably repay more money in the long run. Read more.
Remember, property is at risk of repossession if repayments to a loan secured against it are not maintained.
It is, therefore, extremely important to take professional advice before you commit yourself to this debt solution.
Secured Loans
Secured Loans are specialist loans for homeowners. Secured loans release equity in the same way that remortgages do, but they are in addition to the original mortgage. This means that property owners who do not want to restructure their entire mortgage can have 2 loans, each secured, but with the original mortgage taking priority over the newer loan.
The monthly cost of a secured loan can be very expensive and, again professional advice should be sought before a commitment is made. Read more.
Remember, property is at risk of repossession if repayments to a loan secured against it are not maintained.
It is, therefore, extremely important to take professional advice before you commit yourself to this debt solution.
Limited Company Debt Solutions
To finish off the debt solution section, we thought it would be helpful for those company directors out there, searching for debt advice on behalf of their Limited Company, to be able to read about the IVA for companies.
Company Voluntary Arrangement (CVAs)
As the name suggests, Company Voluntary Arrangements, or CVAs, are very similar to IVAs because CVAs assist Limited Companies repay debt in much the same way that IVAs help individuals.
Based on the same fundamental principles of the IVA option, CVAs provide the legally binding structure for Limited Companies to approach their creditors with a new agreement to deal with the overburden of corporate debts, rather than face liquidation.
Payments are, again, based on affordability over a fixed term with any debt remaining unpaid at the end of the term being written-off. Read more.
We Can Help
If you would like to have a chat with a professional debt adviser to discuss the most appropriate debt solution for your personal circumstances simply call one our helpline now on 0800 088 7502
Alternatively, complete this form and one of our advisers will contact you at your preferred time.
