Debt Choices – what should I do?
There are choices for anyone who is experiencing financial difficulties, whether this be in a personal or professional capacity:
Do Nothing: This is only an option if you are confident that your circumstances are going to improve. If you do nothing and have no exit strategy, you might leave yourself exposed if your situation worsens. It is better to deal with a problem than ignore it. Only do nothing if you are absolutely certain your situation will improve.
Consider Personal bankruptcy: Often bankruptcy is the fastest and cheapest way out of debt. Personal bankruptcy should always be the first debt solution considered as it almost always requires the least repayment to your creditors. If you have no assets to protect, live in rented accommodation or a mortgaged property in negative equity, then this is something you should definitely think about.
Consider an Individual Voluntary Arrangement (IVA): IVAs were originally designed to provide relief to debts generated as a result of business insolvency. In recent years, increasing levels of consumer debt has led to many insolvent individuals with non-business debt seeking the legal protection offered within an IVA. IVAs are usually appropriate where you have assets to protect (such as a property with equity) or are in employment where it might result in dismissal e.g. mortgage brokers. It might be that you have special reasons for not wanting to enter into bankruptcy, in which case an IVA would be a viable alternative. However, this is a wretchedly expensive solution for everyday individuals who have no assets to protect, as it will last for a minimum of five years (they can be stretched to seven years). Add to this the constant reviews and the attachment of overtime and bonuses, and you will feel like the life is being squeezed out of you.
Consider a Debt Management Programme (DMP): You might like the idea of a debt management company handling your creditors for you, as there is no formal agreement in place. Once your circumstances are known, an affordable monthly payment will be agreed and the debt management company will write to all of your creditors and request that interest be frozen. The Debt Management Company will distribute a proportionate amount to each of your creditors. You have access by telephone to your debt management company and do not have to wait to see someone. All this can be arranged in one phone call. This relieves you from having to contact your creditors directly as the DM company liaises with your creditors through the debt management plan. Debt management is quickly becoming popular for property / home owners as there are no restrictions against your property, unlike IVAs. The downside is that the capital is never repaid and they drag on for years without ever resolving the problem. A DMP is essentially a temporary means of keeping creditors at arm’s length, but is not a solution in itself.