Debt Management Plan, IVA or Bankrutpcy
Ok, you have taken out a loan or two, you were managing fine (sort of) until one day, thump!, redundancy hits, you are now looking for work but nothing is going your way.
3 months down the line, your credit cards are maxed to cover the loans, you are struggling to make ends meet and the loan/credit companies just don’t seem to care!!!!
5 months in, still no job, you don’t sleep, you have enough chasing letters to build a house (which you think might come in handy when i lose mine!!)
What are the Options?
Talk to the credit card and loan companies and ask if you can freeze the interest and pay back a reasonable amount until you are back on your feet, but, if they won’t listen and threaten debt collection then some of your options are;
Debt Management Plan
This is where a Debt management company will help you compile a list of all the people you owe money to and send a letter/email to each one asking if you can pay a reduced amount until the debt is paid off. Seems like a good option, but no, the CC/Loan companies are not bound to agree with your terms and will still come after the debt, mainly because of 3 reasons
- a DMP is not legally binding by either party
- the CC/Loan companies won’t accept the low monthly repayments offered
- the CC/Loan companies know that these plans are mostly abused by people who will just continue to rack up more debt and they’ll never get paid
My advice is, unless you can offer approx £20 per month to each CC/ short term loan company as repayment and don’t take out any other loans, then they won’t stop coming after you with debt collection.
Also beware, if you do take out a DMP, make sure you are not charged a fee for setting it up!!!!
IVA
An Individual Voluntary Arrangement ( IVA ) is an agreement with your creditors to pay all or part of your debts. You agree to make regular payments to an insolvency practitioner, who will divide this money between your creditors.
IVA’s are better because they are binding and give you and the CC/Loan companies confidence that you are prepared to at least pay off the debt in time, you will work with the IP to come up with a repayment plan and if the CC/Loan companies agree to it, you pay of one fee per month and they stop chasing you for the debt.
Your IVA can be cancelled by the insolvency practitioner if you don’t keep up your repayments. The insolvency practitioner can make you bankrupt.
You may still be able to keep your business running, if you have one.
Bankruptcy
When all else fails, do this only as a last resort. Although this will wipe your debts in one go you will have this tag around your neck for 6 years so when you are back on your feet a year later and you apply for a contract mobile phone, a credit card, a mortgage, a home catalog or even Sky tv, forget it, you have a worst credit rating than ever before.
Any credit you apply for for the next 6 years will be at 20 times + the % rate people with half decent credit ratings will pay, so you will pay more in the long run.
My advice (which is easier said than done)
- Don’t take out credit, if you can’t afford it with the cash in your hand, don’t buy it.
- If you are in difficulty, speak to your CC/Loan company to arrange to pay it back bit by bit, but don’t take the p**s and offer £5 a month, because they won’t listen to you.
- If you can’t afford or they won’t listen, skip the DMP and go for an IVA if you are in that much trouble. Your credit rating will be in the toilet for a while, but your life will carry on as normal and creditors will take into account that you are willing to pay them back albiet slowly
- Avoid bankruptcy, it will cost you more in the long run
This is my opinion only, if you are in debt, For help, go to moneyadviceservice.org.uk