The Truth about Wiping Out Your Debt

28-May-2010

Think about how much debt you have. Now think about how much of that is made up of late payment fees, interest charges and time spent on hold on premium rate numbers.  It's time to take action to pay off your debt quickly and effectively, and here's how.

If you owe 5,000 GBP or more

If you have more than 5,000 GBP of unsecured debt and you owe money to two or more separate companies, you may be eligible for a debt management plan.  Of course ideally, your very first step should be to call up the companies (your creditors) yourself and try to negotiate a realistic repayment plan.  They should be willing to help, either by reducing or freezing interest charges, because you're taking positive action to repay them.  

However, if communication has broken down between you and your creditors and you are unable to negotiate with them, a debt management plan may get you the resolution that you need.  This is managed by a debt specialist who will liaise with your creditors on your behalf and negotiate a repayment plan.  They will go through your monthly incomings and outgoings and establish the amount you have left after rent or mortgage payments and household bills have been taken care of.  This amount, known as your disposable income, will be used to pay off your debts.

The main advantage of a debt management plan is the relative peace of mind that it provides.  Rather than juggling multiple repayments, you only have to make one monthly payment to the specialist based on what you can afford.  You pay the money to the debt specialist, who then distributes the payments among your creditors.  Getting harassed by creditors?  You can direct calls and mail to the debt specialist to deal with.  It's worth noting that this service incurs a fee, unless you go to a charity.  However if your debts are currently unmanageable, the cost may well be justified.  

Click here to request a confidential callback from a debt specialist today.

If you owe 15,000 GBP or more

If you have 15,000 GBP or more of unsecured debt, you may actually qualify to wipe out up to 75% of that debt.  This is not a quick process and it requires a certain amount of commitment on your part, but after a period of five years you are guaranteed to have the outstanding debts cleared.

This type of debt solution is known as an Individual Voluntary Agreement or IVA, and it comes with certain conditions: you must have at least 200 GBP of disposable income (what is left after bills etc. have been paid each month), and you must owe money to 3 or more creditors.  If you're in Scotland, the equivalent is a Trust Deed - which is very similar except that the minimum debt requirement is 10,000 GBP and the Trust Deed usually lasts for a three year period.

If you qualify for an IVA, you appoint a licensed Insolvency Practitioner (IP) to manage your case.  As with the debt management plan, the first step is to identify exactly how much you owe and how much you can afford to pay back each month without struggling financially.  Then the IP draws up a repayment proposal with your approval, and takes it to your creditors.  As long as the majority of your creditors agree with it, the IVA becomes legally binding.  

Your creditors are no longer able to contact you directly, and are forbidden from taking legal action against you because of the money you owe them.  You will have set monthly payments, and as long as you make these payments in full and on time, you will be discharged from your IVA at the end of the 5 year period and your remaining debts are cleared.  Although your credit rating is affected by an IVA, this process does not last as long as bankruptcy and you can usually keep your house and other valuable assets.

Click here to request a confidential callback from an IVA specialist today.