Working with Debt Consolidation Services

Many people find themselves in a situation where their various debts seem to be spiraling out of control. It may have started with a blow out session on the credit card, which got added to month by month. Factor in a change of circumstances such as losing your job, leaving a partner or an unexpected bill and it`s alarming how quickly things can get very nasty.

Wanting to put things right is all very well but the problem is that it`s often difficult to see where to start. If you would like some help with sorting out your finances, you may want to consider employing a debt consolidation service.

Make sure that you seek advice a company that is a member of DEMSA, the Debt Managers Standards Association. This organization is approved by the Office of Fair Trading and all its members adhere to a code of practice.

Debt consolidation basically means taking out a new single loan in order to pay off a number of unsecured loans currently held with a variety of creditors. The new loan may itself be an unsecured one, or it may be a secured loan, using one of your assets (usually your house) as collateral. The consolidated loan may well be at a lower interest rate than you are currently paying on your existing debts. Furthermore, in some circumstances, debt consolidation companies may be able to reduce the amount of the loan and therefore the amount that you need to repay.

Debt management companies will give free and confidential advice and are able to offer a number of solutions.

The option that is best for you will depend on the amount of debt you currently have. If you owe less than £15,000, debt management may be an option. This is an informal agreement, that doesn`t involve a legally binding contract. It is arranged by the company, on your behalf, with your creditors, in order to reduce the monthly payments you`re making to a level that is affordable to you. You will usually have to pay the debt off in full and because you are reducing your repayments, it is likely that this will lead to an increase in the amount of time it will take. However, by entering into the arrangement you will be taking better control of your financial situation.

If your debts come to more than £15,000 and you are having real difficulties making the monthly repayments, it may be a good idea for you to make an IVA, or Individual Voluntary Arrangement. This is a way of avoiding bankruptcy.

Unlike debt management, an IVA is a legally binding contract, which you make with your creditors. Your creditors are legally able to write off as much as 75% of the debt, which means you could end up paying back less than you owe, sometimes substantially less. This option will generally mean that you will be free from your unsecured debt within a period of five years.

If you are living in Scotland there is a similar arrangement to an IVA which is called a Trust Deed. This may be a suitable choice for someone who has over £10,000 of unsecured debt and like an IVA it is a legally binding contract.

When you have successfully got your finances in order, make sure you switch to a more competitive credit card deal. For example the Tesco credit card has an attractive interest rate and 0% introductory offers on balance transfers and on new spending for introductory periods, plus you get Clubcard points whenever you use it to make purchases.

Comments are closed.