How to get help with debt

 

Financial spreadsheetHaving debts which have spiralled out of control can be extremely frightening but with this advice on how to get help with debt, you can get your finances back on track.

Admitting you have serious debts is the most important step. Burying your head in the sand is the worst thing to do as your financial problems won't go away.

It may seem daunting, but the only way you can start to tackle your problems is by writing down everything you owe on credit cards, store cards, loans and so on, so that you know exactly how much debt you are in.

Then you need to work out the best ways to clear these debts. Here, we take a look at the help that is available and some of the debt solutions on offer.

Get help

If you are drowning in debt and have tried talking to your creditors but to no avail, then you should seek professional help as soon as possible. 

Debt advice charities such as StepChange Debt Charity, Christians Against Poverty or Money Advice Trust provide help and advice free of charge - the latter runs the National Debtline and the Business Debtline.

Alternatively, contact your local Citizens Advice Bureau. They may be able to negotiate with creditors on your behalf, and help you come up with a manageable repayment plan.

Individual Voluntary Arrangement

If you can't sort out an arrangement to clear what you owe gradually through a debt repayment plan, you may want to consider an Individual Voluntary Arrangement (IVA). This is a formal agreement between an individual and his or her unsecured creditors - and it is administered by an insolvency practitioner or debt adviser.

IVAs usually last for five years, during which time you will pay an agreed amount to your creditors. Once that period ends any remaining debts will be wiped out.

You must have a regular income to qualify for an IVA. One of the conditions is that you pay a fixed amount towards clearing your debts every month, although occasionally a lump sum payment is agreed at the outset.

To be eligible for an IVA, you must have debts amounting to at least £15,000 or more from at least three different sources, and at least 75% of your creditors must agree to the IVA.

Bear in mind that you are unlikely to be able to borrow again during the term of the IVA. Once it has finished, it will remain on your file for a further 12 months, which means you will find it very difficult to borrow through loans, credit cards or a mortgage.

Bankruptcy

Bankruptcy should only ever be considered as a last resort for those who cannot clear their debts any other way.

You can apply for bankruptcy yourself, or be forced into it by your creditors. Any company to which you owe £750 or more can apply for you to be declared bankrupt, but bankruptcy is usually only recommended to those with unsecured debts of £50,000 or more.

When you are declared bankrupt, your assets, such as your home, car and other valuables can be used to pay the people you owe money to.

That means your home can be repossessed if this is the only way for your trustee to pay your creditors. If your home is sold, your creditors will be paid after any mortgages or secured loans have been repaid. If there is enough money from the sale of your property to pay the costs of your bankruptcy and all of your debts, your bankruptcy order might be cancelled.

Bankruptcy generally lasts for one year, during which time the debtor is known as an undischarged bankrupt.

The bankruptcy will, however, be noted on your credit file for six years, meaning that banks and other financial organisations to which you apply for accounts and services will be able to see it.

So, while bankruptcy may seem an easy way out, the impact shouldn't be underestimated. If you are declared bankrupt you won't be able to apply for any further credit and you will also be unable to get a current account offering an overdraft.

Your bank will freeze any accounts you hold and may not let you open new ones which means you won't be able to receive or make payments. This will affect any standing orders or direct debits you have, so you have to make alternative arrangements to pay any bills.

There will also be public records of your bankruptcy. The Official Receiver, who is an officer of the bankruptcy court, will advertise your bankruptcy in official records like the London Gazette, which is a publication of legal notices, as well as the Individual Insolvency Register. The reason this is done is so that credit reference agencies can update your credit file.

While all this may seem very traumatic, for some people it is the only way to get out of debt. Remember, you should always seek advice before proceeding with either an IVA or bankruptcy - depending on your circumstances there may other ways to pay off what you owe.

The content on this page is supplied by MoneySupermarket.com.

Last updated: 02-Dec-2013 at 5:03 PM