Getting debt advice can sometime feel confusing with so many different companies, charities and debt solutions available to you.
It’s often hard to know which way to turn when you need advice about financial problems but there are some things to consider first.
Debt Advice Organisation
There are two types of debt advice organisations available which can help resolve your debt problems, for-profit and charity.
For-Profit Debt Advice
Although the advice is probably going to be free, a for profit debt advice organisation may charge you for certain debt solutions.
Debt management plans are usually a good example of the difference between a for profit and charity debt advice organisation.
A for-profit company will charge a monthly fee to manage your debt management plan, which reduces the amount going back to creditors each month.
Charity Debt Advice
Debt advice and the solutions to get you out of debt should not be charged by a charity debt advice organisation. The only exception is when there isn’t a free option available, such as the fees charged in a protected trust deed or IVA.
While a debt management plan is offered by some charities and companies for free, an IVA and trust deed needs an insolvency practitioner to manage the case. The fees from the insolvency practitioner are unavoidable but the charity shouldn’t ever charge you directly for their service.
There are different debt solutions available to people depending on where they live in the United Kingdom. Location could be the difference between repaying debt and entering bankruptcy. You should seek for mortgage advice too before entering a debt solution.
England, Wales & Northern Ireland
Debt Management Plan
If you are able to repay the debt within a reasonable period of time, usually 6/7 years, a debt management plan may be the best option.
You can either contact your creditors yourself or have a debt advice organisation do it on your behalf and set an agreement to repay the debt over set period of time.
It’s an informal debt solution which means it can be changed by either you or your creditors without any notice. Interest and charges may not be frozen which could extend the plan further than originally agreed.
An individual voluntary arrangement (IVA) is a formal debt solution which guarantees to freeze your interest and charges.
You will pay an affordable amount towards your debt for 5 years and any debt remaining will be written off.
It means you can avoid entering bankruptcy but it is still an insolvency solution which has a negative impact on your credit rating.
You also need to take assets and equity from your property into consideration before entering an IVA because it make the solution unsuitable.
When all other options and debt solutions have been explored and aren’t suitable bankruptcy may be necessary.
Debt Arrangement Scheme
Similar to a debt management plan except it’s a formal solutions which guarantee to freeze interest and charges.
This means once the solution begins creditors can’t take further action unless you fail to keep up the agreed payments.
Protected Trust Deed
A trust deed is another formal debt solution and it’s also a form of insolvency because you won’t repay the full debt.
You will make an affordable contribution each month towards your debt for 4 years at the end of which the remaining debt will be written off.
When no other debt solutions are suitable or the debt becomes too much to deal with sequestration will often be the option remaining.
There are a few different routes to enter sequestration, such as LILA, creditor application and certificate of sequestration.