How to Get Out of Debt Now
Debt Solution, Debt Management Plan, IVA & Debt Consolidation Loan
Feb 10, 2009
Many families are wondering how to get out of debt. According to national money education charity Credit Action, Britain’s debt increased by £1 million every 10 minutes during 2008. Money problems have led to increasing numbers of people turning to debt solutions such as debt management plans and IVAs. Others choose to get a debt consolidation loan to minimise monthly repayments and get out of debt.
Should Someone Seeking to Get out of Debt Pursue a Debt Solution or Debt Consolidation Loan?
Bank of England figures showed that British households had much lower disposable incomes than during 2007. Deciding whether a debt solution or debt consolidation loan should be chosen to get out of debt will depend largely on a combination of affordability and personal credit rating. Whilst those with good credit can usually get a debt consolidation loan at 8-9%, this isn't the case for those with bad credit.
Missed payments and loan defaults will mean that debt consolidation loans will not be available at a low APR to bad credit customers. Bad credit debt consolidation loans charge a high APR of about 50-60%. A high APR debt consolidation loan will only serve to worsen money problems and should be avoided in favour of a debt solution.
Debt solutions can be used for all forms of unsecured debt, including: bank loans, credit card debt and personal overdrafts. A debt management plan is normally utilised to help those with more modest money problems get out of debt. An IVA helps those with serious debts over £15,000 to get out of debt.
Alleviate Money Problems with a Debt Management Plan
A debt management plan helps someone to get out of debt. It is a voluntary agreement between a debtor and his creditors. It involves making a payment of at least £100 to an intermediary who, in turn, disseminates the proceeds to creditors on a pro rata basis. Although a debt management plan doesn't write-off debt, it can help someone to get out of debt as interest and further charges are often frozen.
Solving Money Problems with an Individual Voluntary Arrangement or IVA
Unlike a debt management plan, an Individual Voluntary Arrangement or IVA is a legally binding agreement with creditors for debts of over £15,000. Once 75% of creditors, in terms of value, agree to an IVA there can be no further creditor harassment. The debtor will make 60 monthly payments. An IVA allows someone to get out of debt as any remaining debt is written-off after the final payment.
A debt consolidation loan can help someone with money problems get out of debt as, unlike credit card debt, it creates a defined term. However, good credit and affordability are essential to minimise monthly repayments. Those with bad credit will normally be better off opting for a debt solution, such as an IVA or debt management plan. Always get debt counselling before proceeding with a debt solution.
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