Working your way out of the red and into the black can require substantial tightening of the purse strings and cutting down on the luxuries you permit yourself. From cutting out expensive holidays to changing your shopping habits, compromises often have to be made to address financial woes. However, there are a number of long-term solutions which will allow you to work your way out of debt without making these lifestyle compromises.
Debt Management Plan
A Debt Management Plan allows you to restructure your debt repayments better in line with your income and financial situations. A debt management advisor will correspond with your creditors on your behalf and propose a better-suited repayment scheme. Your creditors may be inclined to accept this proposal due to the added guarantee of eventual payment. The advisor will meet with you, the indebted party, to determine your income and financial situation, creating a bespoke repayment plan suitable to all parties.
Many Debt Management specialists such as InControl have a number of specifications which must be met by a debtor for them to be eligible for a Debt Management Plan:
£1,000+ Unsecured Debts
Two or More Creditors
Proof of Income
Minimum Disposable Income of £80
The repayment scheme will be revisited and revised every six months if the circumstances of any party changes over the agreed period. This is designed to ensure you can resume your lifestyle regardless of changing financial situations.
Many Debt Management Plans are designed to help you work your way out of red within 10 years, chipping away slowly at the debt.
Individual Voluntary Arrangement
Since 1986, Individual Voluntary Arrangements (IVA) have been helping debtor make repayments to their creditors. With a similar structure to Debt Management Plan, the IVA works mostly on a larger scale for parties with higher levels of debt.
An insolvency practitioner will work towards rearranging your repayment structure better in line with your financial situation and limitations. You will be expected to just make one pre-agreed payment to the insolvency practitioner who will then divide this up amongst the creditors.
For many debtors, an IVA can help them climb out of debt within 5-7 years whilst adhering to the limitations of their financial situation. The insolvency practitioner may also be able to convince creditors to write off interest and additional charges to the debt, potentially saving the debtor significant amounts of money.
Debtors in Scotland can utilise a product known as a Protected Trust Deed, which works in a similar way to an IVA but is reserved solely for that country’s population.
Debt Consolidation Loan
Taking out an additional loan may seem a counter-productive technique to working your way out of debt, but a debt consolidation loan could help you limit and simplify your repayments. A debt consolidation loan can allow you to pay off all your existing creditors, leaving you owing only the latest loan.
With a specially designed repayment scheme in-fitting with your financial situation, you may be able to work your way out of debt with a reduced effect upon your lifestyle. It will invariably take longer for you to pay off this debt (without an unprecedented change in financial situation) and the total repayments will be larger – but the regular payments will be lower.
Additionally, a debt consolidation loan can remove the stresses of being pursued by multiple creditors chasing the money they are owed.