What is debt consolidation?
Debt consolidation is a way of bringing all of your debts together. With debt consolidation you make just one monthly payment and will be dealing with just one company, this would take the form of a single secured or unsecured loan.
What type of debts can be included in a debt consolidation loan?
With a debt consolidation loan, you are able to consolidate any unsecured debts you may have. Unsecured debts are accounts not secured against tangible property. Examples of unsecured debts include credit cards, personal loans, store cards, overdrafts etc. Debts that cannot be included in a debt consolidation loan include mortgages, secured loans, Hire Purchase (HP) agreements etc, however some lenders will include these if the total balance is under £25000 and you have a strong credit rating.
Is debt consolidation right for me?
If you are juggling many different debts on credit cards, store cards, loans and Hire Purchase (HP) agreements, you should definitely give one of our Financial Solutions Advisors to discuss whether debt consolidation is right for you.
Debt Consolidation may be able to help if:
− you find it hard to manage all of your debts
− you are being charged for late payments or non-payments of your debts
− you are not sure when all of your debts will be paid off
To be really sure though that debt consolidation is right for you though you should give one of our Financial Solutions Advisors a call on 0800 599 9349, they will be able to give you debt advice and talk you through the range of debt solutions we offer.
How could debt consolidation help me clear my debts?
By taking out a debt consolidation loan you would be able to simplify your finances and repay your debts at a slower more manageable pace.
A debt consolidation loan is effectively a new loan that enables you to pay off your debts but leaves you with just one debt to manage, this is of course subject to the consolidation funds being used to repay your other credit.
Debt consolidation is not just about making the repayment of your debts more convenient. By consolidating your debts you will be arranging to repay the new loan over a longer time period, so you will be able to bring your monthly repayment down to a level you can realistically afford which will free up cash each month. Loans are subject to interest being applied.
Repaying your debts over a longer time period can mean you end up paying more back as you will be paying interest for longer.
However if you are consolidating debts with a high interest rate, credit cards, store cards etc, then a debt consolidation loan could reduce the amount of interest you pay.
Do I have to be a homeowner to consolidate my debts?
To take out a debt consolidation loan you don’t have to own a property, nor do you have to borrow against it if you do.
However like all loans, an unsecured debt consolidation loan will often come with a higher interest rate than a secured loan will, some banks and lenders are moving to a risked based lending approach meaning your credit score will impact the interest rate possible.
What is Bankruptcy?
If you cannot afford to pay all of your debts, bankruptcy is a legal process that can be started to relieve yourself from the debt and start again.
If you owe a creditor more than £750, they can also start bankruptcy proceedings against you.
When being declared bankrupt, a “Trustee in Bankruptcy” must be appointed to deal with your assets, they will sell your assets and then use the proceeds to pay off as much of your debts as possible.
As bankruptcy is legally binding, once your bankruptcy ends, your creditors will not be able to pursue you about your debts.
Bankruptcy does bring many implications though, this include being restricted
from being employed in certain professions, having your bankruptcy advertised in the local press and not to mention the implications it will bring on your finances and your ability to obtain credit in the future.
Will being declared bankrupt mean I lose everything?
By being declared bankrupt, all of your assets will automatically be signed over to your Trustee in Bankruptcy. The Trustee then has the authority to sell your assets and use the proceeds to pay off as much of your debts as possible.
You are able to keep assets that deemed essential for your employment including a vehicle, tools and books. You can also keep clothing, bedding, furniture and domestic appliances.
Items that you will lose the right to include:
− Any interest you have in property
− Bonds, shares, endowments and savings policies
− Any money in bank and building society accounts
− Assets of a high value including motor vehicles (unless it is deemed necessary for your employment), jewellery etc.
You may have to pay part of your monthly or weekly wages, this can be either with your consent or by a court order. If so, you will have to contribute any surplus income you have after making your essential expenditure.
Any assets you can acquire during your bankruptcy will also be controlled by the Trustee, who will then sell them and use the proceeds to contribute towards repayments of your debts.
This order is based on you contributing any surplus income and will last for a maximum of three years from the date of bankruptcy. If you acquire any asset during the term of your bankruptcy you have to advise your Trustee, who will realise it for the benefit of people you owe money to.
Lump sums from private and occupational pensions if they mature during the bankruptcy. The Trustee may also be entitled to subsequent pension payments for up to three years.
What will happen to my bank accounts?
All bank accounts you have will be frozen for a period of time, you will be given advanced warning on this and the money in them will be passed to the Trustee to pay your creditors. Your bank may insists on closing your account. You will be allowed to open a new bank account with the authorisation of your Trustee.
Who will know I’m being made bankrupt?
Anyone who you have financial history with will be told of your bankruptcy, this includes banks and building societies, any lenders you have borrowed money from, your landlord (if applicable), pension companies, insurance companies and anybody you owe money to.
Details of your bankruptcy will also be placed in the London Gazette and may also appear in your local newspaper. These details will also be put on the bankruptcy register maintained by the Department of Trade & Industry and the Insolvency Service, this register is a public document and is accessible via the internet.
Can you provide bankruptcy advice?
By talking to one of our Financial Solutions Advisors, we can provide you with debt advice and advice about whether bankruptcy is the best option for your circumstances. It could be that we could offer you an alternative to bankruptcy. WE will not guide you through bankruptcy although you can find information at various sources.
What are the alternatives to bankruptcy?
One of our Financial Solutions Advisors will happy to provide you with bankruptcy advice and discuss your problems with debt. They will be able to assess your income each month and the essential expenditure you need to make, it could be that there is another debt solution that is more suited to your situation. Often people think bankruptcy is the only answer but this of course is not true, other options include debt management plans, Individual Voluntary Agreements (IVAs), Trust Deeds (Scotland only), debt consolidation and Debt Relief Orders.
What is a Trust Deed?
Only available in Scotland, a Trust Deed is a legally binding agreement between you and your creditors. With a Trust Deed, you will agree to pay what you can afford towards your debts across an agreed amount of time, usually three years. As a Trust Deed is a legally binding agreement, during the agreed amount of time, your creditors will also agree not to take further action against you.
Once the agreed period of time has passed and you have made all of the agreed payments of your debts, you will no longer be liable for repaying the remaining balances.
A Trust Deed can only be set up with the help of a licensed Insolvency Practitioner (IP).
Why do I need an Insolvency Practitioner to set up a Trust Deed?
To set up a Trust Deed, an Insolvency Practitioner has to be licensed. With this licensing they will have the experience and qualifications to act in formal insolvency cases and present your Trust Deed to your creditors. The Insolvency Practitioner, usually an accountant or a solicitor will oversee your Trust Deed until it is successfully completed.
Will my creditors accept a Trust Deed?
While we can’t say for sure that your creditors will accept a Trust Deed, they often will because they know by doing so, more of your debts will be paid than if you declared sequestration. They also know that the Insolvency Practitioner will take their interests into account as well as yours. A Trust Deed will also avoid the need for your creditors to take legal action against you to recoup their money, which will be expensive and time consuming for them.
What if I miss a monthly payment on my Trust Deed?
Missing a payment can have different consequences, the Trust Deed may be extended so you can catch up with the payments you have missed. If however you are not co-operating with the terms of the agreement, the Trust Deed will be cancelled, meaning you will no longer have legal protection and will have to deal with your debts yourself.
If you miss the payment on your Trust Deed through no fault of your own, e.g. if you have to take a pay cut or you are made unemployed, your Insolvency Practitioner will reassess your Trust Deed and may amend the payments you have to make each month.
Is a Trust Deed always for 3 years?
The majority of Trust Deeds are set up to cover a period of 3 years, however in certain circumstances, e.g. where you have suffered a loss of income during the course of the Trust Deed, it may be extended.
Will having a Trust Deed affect my credit rating?
Once your Trust Deed has finished it will remain on your credit file for three years. This will make it more difficult to obtain credit but will not make it impossible. However, as you will have now cleared your debts this will also show.
A Trust Deed will be less damaging to your credit rating than the other options including sequestration.
As a homeowner, what will happen to my house?
Only unsecured debts can be included in a Trust Deed, so you will have to continue paying your mortgage as usual. However, to increase what you can pay your creditors, you may be required to release the equity in your home.
What happens when the Trust Deed comes to an end?
Once complete and you have made all the payments to your creditors, as originally agreed by your Insolvency Practitioner, any outstanding debt you have will be legally written off. A completed Trust Deed legally counts as full and final settlement of your debts.
What is an IVA?
IVA stands for Individual Voluntary Agreement. An Individual Voluntary Agreement or IVA is a legally binding agreement between you and your creditors. An IVA is designed as an alternative to bankruptcy, all of your unsecured debts will be included in an IVA, instead of paying each of your creditors directly, you will pay an agreed amount into the IVA each month. An IVA is usually designed to run for a period of 5 years, as an IVA is a legally binding agreement, during the time you are paying into your IVA your creditors will not be able to take legal action against you.
On successful completion of an IVA, all of your outstanding debt will be written off.
An IVA must be set up by a licensed Insolvency Practitioner.
Why does setting up an IVA require an Insolvency Practitioner?
To set up an IVA, an Insolvency Practitioner has to be licensed. With this licensing they will have the experience and qualifications to act in formal insolvency cases and present your IVA to your creditors. The Insolvency Practitioner, usually an accountant or a solicitor will oversee your IVA until it is successfully completed.
How can I set up an IVA?
By talking to one of our Financial Solutions Advisors we will be able to provide you with debt advice and review your financial circumstances to determine whether an IVA is the best solution for you.
If we believe an IVA is the best solution for your circumstances, we will request specific details from you, so we can draw up a realistic IVA proposal that your creditors are likely to accept. The IVA proposal will consist of payments to your creditors based on what you can realistically afford, taking into account your monthly essential expenditure and money allocated to paying secured debts.
Once the IVA proposal has been drawn up, we will send it to each of your unsecured creditors, by viewing the proposal they will see how much of your debt to them you will be able to pay back. There will then be a creditors meeting, at the meeting they can accept your IVA, reject it or request that it is altered. If your IVA is accepted by 75% of your creditors by value, the IVA can start. Once the IVA is in place, your creditors will be legally bound by it, as long as you make the agreed payments, no legal action can be taken against you.
Do I have to attend the creditors meeting?
You won’t have to attend the meeting, but you should ensure you can be easily contacted when the meeting is taking place, so you can be informed should your creditors request any changes be made to the proposal.
Will my creditors accept an IVA?
While we can’t say for sure that your creditors will accept an IVA, they often will because they know by doing so, more of your debts will be paid than if you were made bankrupt. They also know that the Insolvency Practitioner will take their interests into account as well as yours. An IVA will also avoid the need for your creditors to take legal action against you to recoup their money, which will be expensive and time consuming for them.
Why will an IVA be the best solution for my debts?
Until we have assessed your financial circumstances and determined the level of debt you have, we can’t say whether or not an IVA is the best solution for your debts. By talking to one of our Financial Solutions Advisors we will be able to provide you with debt advice and advise whether an IVA is the right solution for you.
If we believe an IVA is the best solution for your debts, the advantages of taking one include:
− An IVA will stop your creditors from pursing legal action
− Once the IVA is successfully completed your debts will be written off
− An IVA will allow you make to make manageable monthly payments that you can realistically afford
− You will know when your debts will be repaid
IVAs are designed as an alternative to bankruptcy, however an IVA doesn’t have as many disadvantages as bankruptcy does. An IVA won’t be advertised in the local paper nor will you be restricted from certain professions. If you are a homeowner, you will more than likely have to release some of the equity in your property but unlike bankruptcy you won’t be forced to sell it.
What if I can’t make the payments on my IVA?
At debtsmart, we understand that your financial circumstances may change, so we will constantly review whether the payments you are making on your IVA are affordable. If you are finding it difficult to make the payments, we can negotiate with your creditors to have them accept lower payments, they aren’t obliged to do this though.
However if you are in a situation where there is no way you can make realistic payments on your IVA, the IVA could fail and you could end up being made bankrupt. As a customer of debtsmart, we will be on hand at all times to provide advice and assistance, so will do everything within our powers to avoid this happening.
What is a Debt Relief Order?
A Debt Relief Order is designed as a cheaper alternative to bankruptcy. Debt Relief Orders are only available to those in severe financial difficulty. To be eligible for a Debt Relief Order you must owe less than £15,000, you cannot be a homeowner, you cannot have more than £300 worth of assets (although you may have one car up to the value of £1000) and you must have less than £50 a month income left over each month once you have made all of your essential expenditure.
What debts can be included in a Debt Relief Order?
Debt Relief Orders are designed for unsecured debts, secured debts – such as mortgages and Hire Purchase agreements, student loans and magistrates and court fines, are all examples of debts that cannot be included. The majority of unsecured debts can be included in a Debt Relief Order.
What are the advantages of a Debt Relief Order?
A Debt Relief Order will:
− provide protection from your creditors pursuing legal action
− offer a cheaper, simpler and quicker option to bankruptcy
− provide a way of helping you become financially healthy
What is a debt management plan?
A debt management plan is an informal arrangement that can be put in place when you find yourself struggling with debt and are unable to meet your monthly payments. A debt management plan will allow you to repay your outstanding unsecured debt across a longer period of time with reduced payments.
Is a debt management plan like a loan?
No, a debt management plan is a way to manage your debts. We don’t buy the debt from the companies you owe, nor do we loan you money to cover your existing debts. We help you to manage your debts by offering a reduced payment to the companies you owe and then negotiate to freeze interest and charges.
What can your debt management plan offer me?
A debtsmart debt management plan will offer a unique debt solution. With a debt management plan you will be assigned a dedicated Financial Solutions Advisor, who will assess your monthly income and expenditure and put together a payment plan tailored to your needs.
A debtsmart debt management plan aims to take away the stress and worry caused by unpaid bills and mounting debt. We can deal with all the letters and correspondence you receive from your creditors on your behalf.
We will also negotiate with them, requesting they accept reduced monthly payments and freeze interest and charges on your accounts to stop your debts increasing further.
debtsmart can reduce your debt if you have been mis-sold Payment Protection Insurance and have unfair credit card charges which can be claimed back. With debtsmart, you will have
How much will a debtsmart debt management plan cost me?
To cover the cost of setting up your debt management plan and contacting your creditors we will take the first two monthly payments, we will start paying your creditors from the third monthly payment received.
From the third month, we will charge a monthly fee that is equivalent to 15% of your monthly payment, this fee will cover the ongoing costs of administering your plan.
What debts can be included in a debt management plan?
Only unsecured debts can be included in a debt management plan. Unsecured debts that can be included include personal loans, credit cards, store cards, overdrafts. Secure debts such as mortgages and Hire Purchase agreements cannot be included, as failure to make the necessary payments on these loans can lead to repossession.
Will a debt management plan affect my credit rating?
If a full repayment, as per your original contract, is not made, your credit rating will be affected, as you are not complying with the original agreement.
A debtsmart debt management plan is put in place to help you clear your debts more quickly; however, your credit rating will be affected in the short term. With a debt management plan you may also end up paying your debts back over a longer period and therefore you may pay more.
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