How to eliminate your debt

How to eliminate your debt

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With the increasing pressure on family finances, it is not surprising that the number of bankruptcy cases has also risen dramatically. Even Bank of England Governor Mervyn King has said that UK families face the toughest time for millions of workers over the coming year, as inflation bites and incomes are restrained or, even worse, reduced.

One of the key ways to get on top of debt problems is to consider debt consolidation. This is where a borrower takes out a new loan and uses the proceeds to pay off expensive credit or store card balances, loans with high interest charges or monthly instalments.

Amongst the hardest hit group are the over 64′s. With limited earning capacity or on fixed incomes rising costs make meeting everyday living costs increasingly difficult. Even though those with jobs and incomes may consider easing debt problems through debt consolidation loans there is a limited appetite amongst lenders for those that may have no or limited income growth prospects.

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debt consolidation works by reducing the monthly payment on a single loan obligation compared with the aggregate amount payable on the previous loans. Although the total amount of interest paid may end up being greater, the prime driver is to reduce the monthly payment to an affordable amount. This way, cash can be freed up to make living within the budget available easier.

If debt consolidation is not an option, then either an informal debt management plan with lenders or a formalised Individual Voluntary Arrangement (IVA) may be necessary. IVAs have to be organised via a registered insolvency practitioner but the advantage is that they will help devise a budget and protect the family home from repossession.

The IVA process involves a negotiator working with lenders to get a repayment plan that is affordable. This can also help define a way towards a changed lifestyle for the borrower that keeps future debt problems under control.

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IVAs can only be considered by those with debt problems in excess of 15,000. It is the final step before bankruptcy but has a number of advantages. Firstly, it is a private arrangement with no one needing to know that there is an agreement with lenders. Secondly, whilst the credit history will be adversely affected, it is nowhere near as bad an option as a bankruptcy notation as this will affect future credit for many years to come.

Whilst smaller amounts of debt may be manageable, larger sums take more effort to get under control. Ignoring debt is rarely an option. Like an uncontrolled growth, debt will eat into relationships and cause all sorts of future borrowing problems if left unaddressed. There is a good and effective legal framework for managing debt problems ranging from debt consolidation loans through to IVAs. Bankruptcy need only be considered as a final and drastic remedy.

The author Edmund Clare has worked with who offer great advice on dealing with debt problems.

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categories: debt management plan, debt management, debt help, managing debt, debt

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