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If you have more debt than you are able to afford to repay comfortably, you may be worrying about how you will come up with the money to cover it without having to declare bankruptcy or lose everything you own. Although you may be thinking that there will be no way out from under your pile of outstanding accounts, this is not the case. These days, there are a few options available to help repair your current financial situation.
After realising that you have too much debt to deal with, you will most likely be wondering how to deal with it and what type of debt solutions could be available to you. Although there are a few different debt management plans available below, your financial situation may not be eligible to use all of them.
The Scottish Government in conjunction with approved money advisors administers these, and they enable you to repay outstanding debts by means of a debt payment programme (DPP). A single weekly or monthly payment is made to your creditors and they will not be able to take further action against you while the DPP is in place.
This option will only be suitable for your financial situation if you have funds left over at the end of the month after all bills have been paid, and if you will be able to repay your debts within a reasonable timeframe.
This is a legal agreement that involves making reduced payments towards your outstanding debts over a period of four years. Any outstanding unsecured debts will usually be written off after the four years have passed.
Because this is a type of insolvency, the value of your unsecured debt will need to outweigh the value of any assets you have like a vehicle or home. Unsecured debts are those such as personal loads, credit cards and store cards.
This is a type of insolvency and could be a suitable option if you won’t be able to repay debts in an acceptable timeframe. Any assets you own such as a home or vehicle could be sold to repay your debts.
If your regular debt repayments are current and you can afford to keep repaying them or you have assets worth more than your debts, you may have to peruse alternative solutions such as Minimal Asset Process bankruptcy (MAP).
This form of bankruptcy involves writing off debt that you cannot repay in a reasonable amount of time. This process is designed for people with low incomes and little to no assets and can only be applied for by means of an approved money advice organisation.
These help consumers manage existing debts and repay them at more affordable rates due to reduced monthly payments being implemented. You will be required to work with an approved advisor to set up a realistic budget and they will manage your repayments to creditors.
This is intended as temporary support until such time as you can get your finances back on track. A TPP will require you to pay £1 per month to each of your creditors until you can afford to repay higher amounts.
This is a temporary solution though, and will only be applicable if you know your financial situation will improve during the next 12 months.
If you’re fortunate enough to obtain a cash lump sum, you may be able to repay all outstanding debt with it – but only if the amount you have is equal to or greater than the amount of debt you have.
If your lump sum is less than what you owe to creditors, you may be able to make ‘full and final settlement’ offers to them. This involves offering your lump sum in exchange for creditors agreeing to perform debt write off on any remaining amounts owing. However, not all creditors will be willing to accept offers like these.
This involves applying for a single loan that will cover the full amount of your outstanding unsecured debts. Although this can be useful in that it enables you make a single monthly repayment instead of several payments to multiple creditors, it is important to explore other options as well.
Consumers often think that they will be able to place all of their debts into a debt management programme. However, this is not the case because only unsecured debts of £5,000 or more will be able to be cleared in this manner.
Examples of unsecured debt:
Many people think that the term ‘debt relief’ means that they will not have to repay what is owing to their creditors. However, you will have to be willing to face up to what you owe so that appropriate measures can be taken to repay creditors and repair your credit rating over time.
In some cases, part of your unsecured debt may be written off. However, this will depend on the particular debt management plan you qualify to fall under. Your chosen debt advisor will provide you with all of the information needed in this regard.
Before rushing into any form of debt management plan, it is essential to obtain advice from a professional financial or debt advisor. He or she will assess your current financial situation and provide you with the best possible option to resolve it.
You will need to be completely honest and upfront regarding your finances, current budget and any assets you have, as this information will be followed up on. Once you have provided all of this information to your debt advisor, you will be able to rest assured that the most appropriate solution will be chosen for you to start working your way out of debt as effectively as possible.