Unsecured Debts Under £5000?

Have Credit Card Debts and Unsecured Loans Caused Bad Credit?

Sep 20, 2008

If credit card debt, unsecured loans and unauthorised overdrafts are making it difficult to sleep at night they are serious debts, even if they add up to less than £5000.

When considering what constitutes a serious debt problem one automatically thinks of owing a large sum of money. The reality is that debt presents a problem when you can't afford to pay it back. The amount of debt is irrelevant.

Dealing with Debt Problems Under £5000

The good news is that there are a number of potential debt solutions available to those with more modest financial difficulties. These solutions include: administration orders, debt management plans, personal bankruptcy and even general cost cutting.

Administration Order

This involves making single payment to the court which they disseminate to creditors on a pro rata basis. There will be a 10% charge for performing this function, but there is no initial fee for dealing with the N92 form. In order to apply for an administration order, the following criteria must be met:

If the order is agreed to the court will normally apply an earnings attachment which prevents the debtor from failing to make their monthly repayment.

Debt Management Plans

A Debt Management Plan is a method of putting all your debts together and making a single payment which is then passed on to your creditors. There is normally a minimum requirement of 3 creditors and you should also be able to afford a minimum monthly payment of £100.

Administering a Debt Management Plan usually incurs a 10% fee which is taken directly from your payments. There are some charitable organisations that offer them for free, such as Pay Plan.

Boost Your Income and Cut Costs

The easiest way to deal with modest financial problems is to reduce outgoings and work over time. Following a few simple steps could very easily allow you to save enough to meet your outgoings.

Bankruptcy

Bankruptcy is a means of dealing with serious debt problems that you cannot afford to pay. You will be able to write off all your unsecured debts and will almost certainly be fully discharged after a period of 12 months, possibly less.

Although it is not uncommon for people to declare themselves bankrupt to eliminate small debts, this approach isn't advisable. Simply declaring yourself bankrupt incurs a charge of £385. The effect on your credit rating is also very serious. There are, in short, better debt solutions out there for this particular situation.

Before deciding on your course of action it is always advisable to speak to an independent debt counsellor at your local Citizens Advice Bureau (CAB).

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