If you are struggling with debt, there are a range of alternatives to debt consolidation to help you back on the path to a regaining control of your finances.
Debt consolidation isn’t for everyone, by taking this path you will making a lower payment each month, so you will have extra cash but to do this you will be paying your debt over a longer period of time and will more than likely end up paying more back.
One of the alternatives to consider is a debt management plan. This structures a clear payment plan to help repay your debts, showing what will be paid and who it will be paid to. With a plan you have a clear idea of when your debts are likely to be paid off. A debt management plan does not require you to take out another loan.
The plan works by tailoring a payment solution specific to your circumstances, and a Financial Solutions Advisors will comprehensively assess all aspects of your monthly income and essential expenditure to work out what you can realistically afford to pay towards your debts each month.
After assessing your financial circumstances, your Advisor will negotiate with each of the creditors you owe money to come to an agreement about reduced monthly payments. With a management plan, your provider will also negotiate with your creditors to request they either freeze or reduce interest and charges that have been added to your debts. After negotiating with your creditors and hopefully receiving a positive result, your Financial Solutions Advisor will then put together a payment plan comprising of reduced monthly payments to each of your creditors. The payment plan will show what you are paying, how much you have left to pay and will give you a clear idea of when your debts are likely to be paid off.
Individual Voluntary Arrangements or IVA’s
For those struggling with a substantial amount of unsecured debt, an alternative to debt consolidation to consider is an Individual Voluntary Agreement (IVA). An IVA is a legally binding agreement between you and your creditors that allows you to make an agreed monthly repayment which is normally fixed for a period of five years. As an IVA is a legally binding agreement, if your creditors agree to the terms they then cannot take further action against you for additional repayment of your debts.
An IVA is designed for those with unsecured debts of £15,000 or more. An IVA must be approved by 75% of your creditors by value. If approved, an IVA could freeze interest charges and set up a tailored monthly payment plan over an agreed fixed period, usually five years.
Trust Deeds for those in Scotland
For those in Scotland an alternative to debt consolidation that is similar to an IVA is a Trust Deed. A Trust Deed is a recognised alternative to declaring yourself bankrupt. The Trust Deed acts as a formal agreement between you and your creditors. A Trust Deed must be administered by an Insolvency Practitioner (IP), if entering into a Trust Deed, you will agree to pay one reduced monthly payment for all of your debts over a fixed period, usually three years.
For those in severe financial difficulty, debt consolidation is probably not the answer. An alternative to consider is a Debt Relief Order. This is designed for those who are unable to repay debt over a reasonable amount of time and will freeze your debts for a period of 12 months. Throughout the 12 months, your creditors will agree not to pursue you for the outstanding debt, nor add further interest on to the balance. If, after the 12 months have passed, you are still unable to pay back your debts at a reasonable amount each month, they will be written off.
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