How to Get Out of Debt – Your Options

Many people struggling to repay their debts end up feeling trapped – wondering how they are ever going to get out of the situation.

Thankfully, there are a number of things you can do to get out of debt. Here we take a look at a few tips that could have your finances back in order quicker than you may think.

Set a budget
At the heart of a healthy bank balance is a well-planned budget. Budgeting can allow you to keep control over your finances, by allocating a proportion of your salary to each of your commitments – leaving you with an amount that you know is safe to spend (or save) as you wish.

At the start of each month, set out how much you think you will spend on each of your commitments (this is easy for fixed costs such as council tax, but you may need to put down a rough estimate for things like food and energy bills). Add up the total, and the amount you have left is your ‘disposable income’. Then, at the end of the month, look back at how you did. If you still managed to overspend in some areas, then you will know to up your budget for those particular costs.

If your commitments exceed your monthly income, then you should seek debt advice as soon as possible to discuss how you can get your costs down and/or manage your debts.

Switch providers
If you feel you may be paying over the odds for some of your expenses, such as energy or broadband bills, it’s often possible to save money by switching provider. There are a number of websites that make doing this very simple, and the difference in price can often be more than you’d think.

However, be careful of any additional costs – you may be charged to leave your existing provider, and some energy companies have standing charges on their tariffs which may not be immediately obvious on their websites.

Use savings
Although it may go against your financial instincts, it’s usually a good idea to use any savings you have to pay off your debts.

Most importantly, this will stop your debts from growing. Since the interest on debt tend to grow more quickly than the interest on savings, you will spend less money overall by repaying your debts now, and stopping them from growing, than you would by continuing to save money alongside repaying your debts.

Check your entitlement to benefits
There are a number of benefits on offer from the Government that you may be entitled to if you meet certain criteria – and many people don’t know how much they are entitled to. To name some examples, you may be entitled to benefits if:

•    You live in a low-income household
•    Someone in your household has a disability
•    You have children
•    You or someone in your household is unable to find work

If you think you may be entitled to benefits, visit the Government’s benefits website at http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/index.htm.

Find the right debt solution
If the above tips either don’t help or don’t apply to you, then it may be time to seek professional debt advice. There are a number of debt solutions, such as debt consolidation loans, debt management plans and IVAs (Individual Voluntary Arrangement) that are designed to help people in varying situations.

What is an IVA, am I eligible & how effective is it?

An IVA (Individual Voluntary Arrangement) is a legally binding agreement designed to help you repay as much of your unsecured debt as possible – and write off what you can’t afford to repay in a realistic amount of time.

Basically, it’s an agreement between you and your unsecured creditors: if you can agree on the terms, you will – in most cases – commit to making reduced monthly payments for five years (60 months), and your creditors will agree to accept your payments, not to take any legal action against you, and to write off all your outstanding unsecured debt once the agreement comes to a successful conclusion.

IVAs – how do they work?

If you think that an IVA could help you tackle your debts, you should contact an Insolvency Practice.

If, after speaking to them, you find that an IVA is right for you and decide to enter one, you will work with an IP (Insolvency Practitioner) to draw up an IVA Proposal, which provides your creditors with information about how you propose to repay as much of your debt as you can – assuming the IVA is agreed.

It’s then up to your lenders to vote on your Proposal. For the IVA to go ahead, voting creditors accounting for at least 75% of your debt would have to agree to it. If they do, it will become legally binding on everyone – including those who voted against it, or who didn’t vote at all.

Once your IVA has begun, you will make just one payment per month to your IP. They will subsequently pass on a portion of this money to your lenders based on how much you owe each of them. The payment you make will be based on what you can realistically afford after you’ve taken your essential expenses (mortgage/rent payments, utility bills, food bills, etc.) into account.

In general, you will make your payments for five years, and if you are a homeowner you may be required to release some of the equity in your home half way through the final year of the agreement, so you can repay more of your debt.

Finally, once you have made your final payment, the IVA will come to a successful conclusion. Your unsecured creditors will write off all the remaining debt, and you’ll be legally debt free (in terms of unsecured debt – an IVA can’t write off some forms of debt, such as mortgages).

Please note that entering an IVA will damage your credit rating for 6 years – which could make it harder and/or more expensive to obtain credit during that time.

Would I be eligible for an IVA?

Finding out if you are eligible for an IVA isn’t down to a checklist – you will have to speak to an Insolvency Practitioner. But if you are struggling with significant unsecured debts that you can’t afford to repay within a reasonable amount of time (but that you can commit to making regular reduced monthly payments towards), you could be eligible for one.

How effective is an IVA?

Providing you can stick to your side of the agreement, an IVA can be a very effective debt solution. You will – in most cases – be legally debt free in 5 years, and will have the portion of your debt that you can’t afford to repay written off.

But that doesn’t mean an IVA is right for everyone – it’s important to talk to a debt expert and explore all your options before you make up your mind about how you’re going to tackle your debts.

For more information visit www.IVAForum.org.uk

I received the pink slip and now credit card debt is sucking up all of my savings

My family everyday living has spiraled pretty much out of control all stemming from bad money issues.  For me it all started after I got fired from my job this was something that I completely didn’t foresee this happening and well of course it did.  Needless to say losing income is not beneficial for any of us but I have not yet picked myself up and found another job yet.  This right away made me understand just how bad another financial problem I had is.  This problem is credit card debt.  My debt bills are extremely steep and with no employment I can’t pay them and will no doubt begin to fall into delinquency on the monthly payments.

I have been seeking out a debt solution that will help me out while I am still seeking a new job.  Many financial experts have been saying that debt settlement is a sensible process that will be for consumers in my sort of predicament.  The goal in mind of this process is for the client to save funds and quickly get off the credit treadmill.  This sounds precisely like what I will be doing. 

It seems like credit card debt settlement is actuality the only sensible road for my family because a bankruptcy hearing would involve me selling my home and a consumer credit counseling program is something I can’t pay for.  I have talked about this program with my partner and she feels that credit card debt settlement would be a smart idea for us too.  When we get out of debt then we plan on becoming much more responsible with our money and never get wedged in this terrible trap ever again.

Flash Card