When debt spirals out of control, it can be a source of considerable stress and misery. Taking steps to manage it proactively is therefore vitally important. The good news is that there are many different ways to deal with debt. Let’s consider a few of them.
Debt Management Plans (DMPs)
A so-called debt management plan is a way of renegotiating your debt with your creditors. Instead of many different payments to multiple parties, you’ll instead make a single payment each month to the DMP provider, who will then take care of dividing the money to the appropriate parties. This is perfect for those with unsecured debts, but not viable for secured ones.
Individual Voluntary Arrangements (IVAs)
You can often manage your debt through something called an Individual Voluntary Agreement. This is a kind of legally-binding agreement used to restructure the debt. You’ll pay an organisation called an insolvency practitioner, which will deal with your creditors. You won’t have to pay interest on your loans, in most cases, and you won’t get any more intimidating letters from debt collectors.
The fee charged by an insolvency practitioner tends, however, to be quite high – which means that this option only tends to be viable when the level of debt is high.
Debt Consolidation
Debt consolidation loans work in a similar way to DMPs, except that rather than having a provider pay your creditors each month, you’re instead paying them all at the same time using the money you get from the loan, which you can then pay back to a single new creditor. Typically, this option requires a good credit score. If you don’t have one, then the rate you’re offered might not be competitive.
Debt Relief Orders (DROs)
A debt relief order is a way of giving yourself breathing space if you don’t have much in the way of disposable income or assets. After an order is given, you’ll stop paying your debt (including interest) for twelve months.
Your financial activities might be restricted during this time, and you won’t be able to apply for another DRO for six years. You’ll need to apply for this through an approved advisor.
Since the criteria for a DRO are very restrictive, it tends only to be a viable option for those in very dire financial difficulty. You can think of it as a kind of financial life-preserver, that can help you to keep your head above water.
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