Which Debt Management Plan Is Best For You?

By consolidating all your credit card debt into a single monthly payment, you can save hundreds of pounds every month, and ease the burden of spiralling debts and repayments. But, if your application for this sort of loan is rejected, there are several other things you can do.

The global credit crunch is making more people aware of their debt problems as increasing number of credit card and loan applications are being turned down, but how can you manage debts when this happens to you? You could take evasive action and bury your head in the sand or run away, but this isn’t recommended and could see you in big trouble. A more realistic option is to seek impartial debt advice from a debt help provider. They can suggest ways to cope without having to borrow any more money, and they can also recommend a number of alternative solutions to help with your finances. By speaking with a specialist who deals with debt problems daily, they could help alleviate your finances immediately, as they may be able to offer words of wisdom to increase your income - you may not be receiving all of your benefits or tax credits, or they could have other suggestions to boost your income. They could also recommend ways to reduce your outgoings – like finding a cheaper gas/electricity supplier, or pointing out where you are spending more than you should. In certain cases they may also recommend a professional solution to improve your financial situation, such as an Individual Voluntary Arrangement (IVA), Trust Deed Debt or a Management Plan (DMP)

Consolidation loan alternatives explained

Individual Voluntary Arrangements (IVAs): IVAs have increased in popularity massively in recent months - apparently, every 3.5 minutes someone is going bankrupt or entering into an Individual Voluntary Arrangement (IVA) in the UK. As more people have struggled to secure a loan or other credit, they have had to keep going further in to the red on their existing overdrafts, credit cards and other balances, which has meant that more people than ever are seeking IVAs. An IVA can help clear all of your unsecured debts, usually within a five year period. After this time any unsecured amount remaining is written off. With an IVA a legally binding contract is drafted by a licensed insolvency practitioner, which is designed to protect you from creditors changing their payment demands. The Insolvency Practitioner will also provide IVA advice and support throughout the full term.

All unsecured balances are gathered into a single affordable payment which is based on how much you have available to repay to your creditors after priority payments and living costs have been taken into account – these priority payments and living costs include rent/mortgage, utility bills, council tax, food, travel to work, basic satellite/cable and mobile phone packages etc.

Once an IVA has been accepted, all additional interest and charges will stop being added to your balances, so the amount of debt doesn’t continue to grow. Also as all contact with creditors is done via your insolvency practitioner, letters and calls from them will stop.

Trust Deeds

Trust Deeds work much in the same way as an IVA, but are for people living in Scotland. Like an IVA they are repaid over a fixed term, however with Trust Deeds this is generally within a three year period. A legally binding contract is also needed with a Trust Deed, which is drafted by your insolvency practitioner and protects you from any creditors changing the terms to the agreement, like their payment demands.

Once the Trust Deed has been completed, all remaining unsecured balances are effectively written off too.

Debt Management Plans (DMPs)s

A debt management Plan is a more informal solution that doesn’t require the services of an insolvency practitioner. There are no contracts involved, so you are free to use the DMP for as long as needed as-and-when-required.

Like with an IVA, all unsecured balances can be repaid with a single monthly payment – which is again based on your affordability. However, on a DMP this payment is flexible and can be changed to suit your current financial situation. So if your wages have dropped or your available income has been affected by rising costs or reduced working hours the amount you pay towards your DMP can be altered accordingly. This means that it will always be affordable to you.

Debt Management Plans also give you the satisfaction that you are repaying the amount that you owe in full, so you aren’t shirking any responsibilities, but they can be repaid in a way that is more convenient and affordable to suit you – not your creditors.

Reputable debt help providers include The Debt People, Hamilton Locke and Chiltern – all of whom are well established and highly regarded within the industry