Your income and expenditure decide the Debt loads. The situation gets even worse when you are unable to pay off the money you owe to your money lenders. You can easily calculate whether your debt load is more than what you can afford to pay. Your debt/income ratio can be determined by comparing the amount you owe against the amount you earn monthly.
Now, managing the debt has become way easier with installments. All you need to do is set up a debt management plan, administration order, and individual voluntary arrangement.
Further, you can also apply for a debt relief order in case you are unable to settle the debt.
How You Can Manage Your Debts?
Borrowing money is fine until it becomes uncontrollable. Thus, you can get help with debt loads with these 5 effective tips
1. Enough Information About the Person or Organisation You Owe
Moneylenders lend you money but that does not mean you should borrow money from an untrustworthy source. Get to know about the person who is lending you money. In case, it is an organization or commercial bank, have detailed information about the bank and check the reviews before you make a decision.
2. Pay Off Your Monthly Installments on Time
Paying off your monthly installments on time is very important. You should not avoid paying this minimum amount of money every month. But you need to understand that delaying the time of repayment will make it more difficult for you to pay off the money later.
3. Make a List of Your Debts and Act Accordingly
Another most important aspect that you must incorporate is to make a list of all your debts. Divide them into two parts, short term debts, and long term debts. According to that list, you can decide which debt you should pay off first. After you are done with the list, follow it accurately to pay off your debts.
4. Pay Off Collections and Charge Offs
You pay the minimum amount of money that you can afford as monthly payments. But when the fund is limited and you can’t decide which debt to pay off first, make sure you pay installments for the account that is on the positive side. You should also monitor the credit scores regularly.
How Can You Pay Off Your Debt?
You have various options for paying off your debts in the UK. The government has introduced various debt management schemes. These are as follows-
Debt Management Plans
The first option for debt help UK is Debt Management Plans. If you are wondering what the Debt Management Plan is, then it is an agreement. An agreement between your creditors and you, that a financial company manages. Debt Management Plans try to decrease the level of your debt by convincing your creditors to extend the time limit.
But remember, Debt Management Plan can only be used for paying off the unsecured debts. Unsecured loans or debts are debts that you get without considering your property as a guarantee. You have to keep paying the third party company that will manage these aspects. You may have to pay a set-up fee and handling fee whenever you make payment.
An administration order is basically a way to deal with your debts. It is applicable when you have got CCJ (County Court Judgements) or High Court Judgements against you for not being able to pay off the entire money.
People refer to it as a legal binding agreement between the creditors and the defaulter. But remember, you can only apply for Administration Order if the amount of debt is less than 5000-pound sterling.
When you make one monthly payment to the local court, the court receives the money and distributes it among your creditors. The most beneficial side of the Administration Order is that the money lenders can not take any step without the court’s permission while the process is going on.
The court will decide how much you will pay every month and how long the agreement will last. For this, you have to pay a certain amount of money to the court every month. But this will not exceed more than 10% of your total debts.
Individual Voluntary Agreement or IVA
The most effective way to deal with your debt issues is Individual Voluntary Agreement or IVA. It is also an agreement between you and your creditors to pay off your debts in full or partly. Here, an Insolvency Practitioner will get involved.
You need to refer to him while paying off the owed money to your creditors in time. He will act as a medium between you and your creditors.
You give money to IVA and IVA will distribute the money among your creditors. The main objective of an IVA is to protect your assets and protect you from getting bankrupt.
The Insolvency Practitioner figures out your eligibility to repay the owed amount of money and convince your creditors accordingly.
But for that, you will have to provide the practitioner with all your financial information like your monthly income, list of debts you owe to your creditors, assets, etc.
As IVA will help you to get rid of your debt load, you will have to pay a certain amount of fee for it. Your IVA will only be applicable if the creditors who hold 75% of your total debts agree to it.
Take Help from the Government Debt Help Schemes
To help you clear your debt load, you should take help from Government Debt help schemes. The government has taken an initiative to help you deal with your debt issues. Here, you get to know about the plans that can help you in the long run.
1. Debt Relief Order
This is a compact plan introduced by the government to reduce your debt load. Debt Relief Orders are often referred to as DRO and are a smart way to deal with your debt if only you owe 20,000-pound sterlings, don’t earn sufficient money and don’t own a house/property.
When you receive a DRO, it means that you have the court’s permission to pay off the owed amount of money according to the new terms and conditions set by the court. An officer of the bankruptcy court will send you this agreement. But remember, to get the DRO, you must consult an authorized debt adviser who will help you file the paperwork.
The official receiver will charge you for seeking help from him. Your debt adviser will help in this by telling you when and how to pay the official receiver.
When you get a DRO, you must abide by certain rules such as when you borrow further money from a lender, you can not tell him that you have DRO. Also, you can not create and promote a company without the permission of the court. You have to allow your business partners to know about the DRO.
These restrictions usually last for 12 months. But they tend to extend due to misbehavior or carelessness. The official receiver will help you to get to the details about it.
2. Debt Consolidation
Debt Consolidation is a way of paying off all your existing loans. When you have got a huge amount of money to pay off to your creditors and you don’t have enough money in hand or in the bank account, you may apply for a Debt Consolidation loan.
Before applying for Debt Consolidation, remember that it requires a long time planning. Some consolidation requires you to secure the loan amount against your property. So, get detailed information about it from the trusted sources and then apply for it.
Debt Consolidation will provide you a huge amount of money so that you can pay off all the short term loans that charge you a high rate of interest. You will be able to pay off all your existing creditors and do not have to worry about the high monthly installments anymore.
You will only have one long term debt to pay off. So, it will become very easy for you to pay off the monthly installments. Further, Debt Consolidation Loans also help you to improve your credit scores.