Debt Solutions - Pros and Cons
Write off Debt, Overcome Financial Difficulties and Become Debt Free
Feb 21, 2009
A debt solution, such as an Individual Voluntary Arrangement or debt management plan, helps someone become debt free. Write off debt and resolve financial difficulties.
Research by Grant Thornton showed that the total outstanding UK consumer debt amassed through mortgages, loans and credit cards has increased by 7.3% to £1.444 billion over the past year. Many people who are struggling with financial problems and serious debts turn to a debt solution to help them become debt free. Is this a sensible idea?
Advantages of Debt Solutions
- Write off or manage debts. Some debt solutions, such as an Individual Voluntary Arrangement or personal bankruptcy, will allow someone to write off debt;
- Stops creditor harassment. An Individual Voluntary Arrangement is a legally binding agreement so no creditor can pursue someone regarding personal debts. A debt management plan, although a voluntary agreement, will normally prevent creditor harassment;
- Prevents personal bankruptcy. A debt solution can be introduced relatively quickly and, once creditors know they will be receiving a payment, most would rather that than receive nothing by declaring a debtor bankrupt;
- Affordable monthly payment. Signing up to a debt management plan or Individual Voluntary Arrangement means that a debtor can put all forms of unsecured debt, such as credit card debt and unsecured loans, under one roof. Better yet, a single monthly repayment is made which is disseminated to creditors on a pro rata basis;
- Removes stress and anxiety. Paying money into a debt solution may create bad credit, but it does allow a debtor to feel as though they are making in-roads into any serious debts. This can help someone to sleep more easily as a debtor knows that they will eventually become debt free.
Disadvantages of Debt Solutions
- No guarantee of creditor acceptance. Whilst most creditors will agree to a reasonable offer under a debt management plan or Individual Voluntary Arrangement, there is no guarantee that this will be the case. If a debt solution is rejected, it could result in personal bankruptcy;
- Credit report. A debt management plan or Individual Voluntary Arrangement will show on a credit report meaning that further unsecured borrowing is unlikely. This won't really affect many people struggling with serious debts as most will already have bad credit and should avoid further borrowing;
- No debt write-off. Whilst a debt management plan can result in interest and charges being frozen, it doesn't result in a debt write-off. It may be more viable to consider alternative debt solution, such as an Individual Voluntary Arrangement, where up to 75% of serious debt can be eliminated;
- Costs. The charges imposed by private companies for running debt management plans are usually about 15%. This reduces the amount that goes towards paying off unsecured loans and credit card debt. An Individual Voluntary Arrangement requires the appointment of an Insolvency Practitioner which can cost up to £7,000;
- Secured debts. It isn't possible to include secured loans or mortgages in a debt management plan or Individual Voluntary Arrangement. Only unsecured debts, such as credit card debt, unsecured loans and personal overdrafts can be included.
A debt solution, such as a debt management plan or Individual Voluntary Arrangement , can help someone struggling with financial difficulties to become debt free. Tackling serious debts with further unsecured loans only serves to lead to further personal debt and creditor harassment.
The copyright of the article Debt Solutions - Pros and Cons in Personal Debt Management is owned by Asa Ghaffar. Permission to republish Debt Solutions - Pros and Cons in print or online must be granted by the author in writing.
 |
 |
 |
 |
 |
