Consolidating and managing your debts can be the simple and elegant solution to working your way out of your debt. Realigning your repayments to suit your means can help you keep your head above water whilst satisfying your creditors (the parties to whom money is owed).
There are a number of different forms of debt consolidation, suited for a variety of different circumstances and each bringing their own advantages and disadvantages. Our simple guides can help you determine which debt consolidation scheme may be best suited to your particular circumstances. Contacting our dedicated, experienced advisors on 0800 072 6623 will help you further determine the correct course of action for you to take.
Debt consolidation can include taking out an additional loan at a lower repayment rate or simply employing the services of a consolidation expert to realign your debts and repayments to a level better suited to your current circumstance.
What Type of Debt Consolidation Should I Choose?
Understanding the full ramifications of debt consolidation schemes can help you pursue and further research the option best suited to your needs.
Debt Management Plan
An In Control advisor can help redirect and realign your repayments to creditors, making it more affordable and better suited to your current circumstance.
Our Debt Management Plan advisors will measure your income and regular outgoings to determine a rate of repayment better suited to your needs. The advisors will then correspond with the creditors on your behalf, offering a new rate of repayment. Once the creditors have all agreed to a new rate, you will be responsible for making these repayments.
Our advisors will also enquire about the possibility of stopping interest and additional charges.
In many cases, creditors are keen to accept the reduced repayment rates when they understand that it will increase the chance that they will receive all the planned payments in timely fashion, allowing them to budget correctly.
The In Control advisors will then perform a full financial review every 6 months to evaluate whether the setup still benefits all parties.
Who Benefits?
Parties who have debt repayments above their means and are struggling to make the payments can benefit from managing their debts. The smaller rates of repayment may take longer to complete but may be more manageable. There are a few criteria for parties to meet to be eligible for a Debt Management Plan:
– £1,000 Unsecured Debts
– Minimum Disposable Income of £80
– 2 or More Creditors
Disadvantages
Parties implementing a Debt Management Plan will suffer from a negatively affected credit rating. In the vast majority of cases, the lower rates will necessitate a longer repayment period.
Additionally, creditors are not obligated to accept the rates set out by the Debt Management Plan.
For more information, visit our Debt Management Plan FAQ page.
IVA (Individual Voluntary Arrangement)
An IVA is similar to a Debt Management Plan in structure, with advisors consolidating a party’s debt into one monthly payment. A more formal solution, an IVA is usually reserved for debtors with higher levels of debt.
An Insolvency Practitioner will propose altered repayment plans to your creditors, better suited to your current circumstances. Once all creditors have agreed to this new rate of repayment, one simple payment has to be made to the Insolvency Practitioner who will then divide the sum between the creditors accordingly.
For a new rate of repayment to be agreed upon, 75% of your creditors must permit to the change in conditions. Changes can be made to the IVA, but these must be agreed upon by all parties.
Who Benefits?
Debtors with high levels of debt they cannot maintain can benefit from an IVA. There are a few criteria for parties to meet to be eligible for an IVA.
– £12,500 Unsecured Debts (sometimes, IVA’s can be agreed lower than this)
– Minimum Disposable Income of £125
– 3 or More Creditors
Disadvantages
Homeowners may be required to release equity from their home. An IVA will remain on your credit file for 6 years and will affect your ability to gain credit in the future. Like in a Debt Management Plan, creditors are not obligated to accept the terms of an IVA.
For more information, visit our IVA FAQ page.