A Guide on How to Get Out of Debt

Debt Consolidation and Debt Management Advice Can be Useful

Sep 4, 2009 Carol Finch

It can be hard to know how to get out of debt. There are many different debt management solutions that might work. Choosing the right one is important.

People with debt problems may suffer from a lot of stress and worry. Even if their financial outlook is just a little worrying right now rather than a real concern, this can cause a lot of problems in their lives. Knowing how to get out of trouble is probably the hardest thing in this situation. Many are aware that there are various debt management solutions that might help them. But, many also don't know which one to choose. Let's take a look at some of the most common options.

Debt Consolidation

Debt consolidation is a popular choice for a lot of individuals who want a way of bringing their debts under control again. This solution involves moving current debts into one new debt. So, for example, many people will take out a personal loan which they will then use to pay off all their existing debts. This may give them lower repayments and may help them cut down on problems with high interest charges. Having one repayment to make every month may also make it easier for them to manage their finances. A debt consolidation calculator can be a quick way of assessing whether this solution will work.

Debt Management Programs

Debt management programs are informal solutions that can be set up by the individual on their own behalf or with the help of an advisor or a debt management company. This solution involves talking to the people to whom money is owed (i.e., the creditors) with a view to coming to an arrangement with them to repay what is owed on a more affordable basis. This may involve them accepting lower repayments, freezing interest and even writing off some debts in a few cases. The individual will then have one monthly payment to make which is shared between their creditors.

IVAs (Individual Voluntary Arrangements)

IVAs are a formal debt management solution. An individual considering this route will need the help of an Insolvency Practitioner to apply for, set up and manage their IVA. They will also need the agreement of their creditors (or a specific percentage thereof) to take this route. Often considered as an alternative to bankruptcy an IVA will last for six years. During this time the individual will pay back what they have agreed every month. Anything left owing at the end of the six years will be written off. An IVA may make it easier to hang on to assets such as the individual's home.

Debt Relief Orders (DROs)

Debt Relief Orders were set up by the Government to help people on lower incomes to find a better way to manage their debts. A DRO works like an IVA in that individuals take the DRO out for a specific period of time during which they may need to make some debt repayments if their financial circumstances change. This solution will, however, usually only last for around 12 months. At the end of the term all remaining debts are, once again, written off.

Bankruptcy

Bankruptcy may seem one of the easy ways to get out of debt but it is also potentially one of the most serious solutions to take. Most bankruptcy proceedings will last for a year and will involve the sale of assets (including potentially the home) to raise money to repay as much of the debt owed as is possible. At the end of the bankruptcy term the individual will be debt free with any remaining debts cleared.

Advice on How to Get Out of Debt

Not all of these solutions will suit every individual. Some may find that more than one option will look like a potentially good deal and may not know which route to follow. There are also other issues to consider including whether the individual's credit rating will be impaired by the action that is taken. It is always worth taking some general debt management advice before choosing an appropriate solution. That way it will be easier and quicker to decide how to get out of debt.

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