Debt Management Advice

From Cyberlaw: Difficult Issues Winter 2010
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Debt Management Advice

A large number of people are at risk of being in debt but are not aware that they could benefit from debt management advice to help them if they are struggling to manage their finances. Many people do not realise that a debt management plan can give them the best chance of repairing their debt and getting out of financial difficulty.

A debt management company can also help you work towards a debt free future by offering budgeting tools, debt validation, and debt counselling. Debt solutions are typically arranged through a third party and most non-profit organisations and charities will arrange one for free with no charge to the client.

An Individual Voluntary Arrangement or IVA is a legally binding agreement in which you agree to make regular payments to an insolvency practitioner. This is usually a company who will represent you in negotiations with your creditors and form a plan to avoid bankruptcy if the deal for debt solutions is not agreed upon.

An individual voluntary arrangement usually freezes your outstanding debts and enables you to repay them over a period of years. The insolvency practitioner handles the debt with your creditors each month, which means you will usually not have to worry about creditors calling you asking for money and will not have to deal with them directly.

One of the benefits of an individual voluntary arrangement is that it usually involves a reduced level of debt. The amount of money that is owed can be negotiated and set at a lower level than would be expected on your own without a plan in place. This is one of the advantages of debt management over bankruptcy as you can end up making some payments that are easier to afford which can reduce the stress felt by people in financial difficulty.

If you consider making use of debt management rather than bankruptcy then you should get some confidential money advice so that you are better prepared when you talk to your creditors. Unsecured debt can be more dangerous than secured debt because creditors can take your home and sell it if you do not pay. Insolvency practitioners are experienced in dealing with such issues and it can be far better for both you and your credit report if you start using their services early on.

Your credit report can suffer as a result of poor debt management arrangements; because it is an agreement between you and your creditors, it is important to ensure that your creditors are made aware of what is happening at every step of the way so they can give you the most accurate and most useful advice. Insolvency practitioners can also enter into negotiations with your lenders to reduce the amount of money owed. They can help to reduce the level of interest that you pay. This can mean the difference between having a slightly worse credit rating and having a much better one.

You need to find out what sort of solutions your creditors are offering because some options are better than others. You should look at the different solutions available and find out whether you are eligible to benefit from them. The eligibility criteria can differ and you need to discuss this with your advisors. There are free debt advice centres and services available, though some will charge a fee for their services, so bear this in mind when choosing an advisor.

A DMP is a very good debt solution if you can afford to make regular repayments. However, the longer you are in debt and fail to make payments on time without an agreement or arrangement, the more your creditors will become irritated and they may start legal proceedings against you. This could include reporting you to the credit agencies. You have to be honest with your advisors about how much you can afford to pay each month. You do not want your creditors to take action against you because you cannot afford to pay your debts. The best thing to do if you are struggling to manage any amount of debt is to look for advice early on. This can make a huge difference to your experience of debt management.

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