Guide to Debt Management Services
During these tough economic times debt has become something that many people have had to live with. This has meant that they have had to often seek out various forms of debt management services, of which there are three main ones. This article aims to discuss these three main types of services and give you some kind of an idea regarding which could be the best for you.
Before discussing them further though, it is important to realize that debt is a serious issue. Many people rush into different debt management solutions without first considering the options. This article is only meant to be a guide – in no way should you use the information here as a substitute for advice from a professional in the field.
Debt Management Plan
The first of the debt management services available is known as a debt management plan, otherwise known as a DMP. Of the three different solutions, this one is without doubt the least drastic and is becoming more and more common with people throughout the country. They are generally used by people with smaller amounts of debt – usually up to about £15,000 – however those with debt totaling £7,000 or more should also look into the option of an Individual Voluntary Arrangement (IVA) or a Trust Deed if in Scotland.
The basic premise of a debt management plan is that the company you use speaks to all of the different companies that you have borrowed from and then arranges a payment plan with them. The amount that you pay per month is usually calculated by assessing the amount of disposable income that you have. You pay this disposable income to the company running your debt management plan, and they in turn doll out the agreed payments to the different creditors.
The main advantage of this type of agreement is that it is entirely flexible, as you can choose to pay more should circumstances allow. Also, if you happen to be short on money for a month, it is possible to speak with the people running your debt management plan and arrange something with them. Also, a good debt management plan will have the interest paid on outstanding money owed, therefore meaning that the amount owed reduces dramatically every month.
Please note that you don't have to pay someone to do this and you can do it yourself or liaise with your Citizen's Advoce Bureau for free help. But if you feel you would prefer to hire someone to assist you, we can help.
Individual Voluntary Arrangement/Trust Deed
There are two names for this type of arrangement, as they are called Individual Voluntary Arrangements in England and Trust Deeds in Scotland. However, they are extremely similar, with the only difference being that an IVA will last for 5 years, whereas a Trust Deed will only last for 3 years.
The basic premise of an IVA/Trust Deed is that you agree to enter into a legally binding contract with your creditors which must be created by a qualified insolvency practitioner. You then agree to pay a certain amount off every single month to the creditors, and at the end of the agreement all outstanding debt is written off. Also, while you are in one of these agreements, creditors are unable to take legal action or other action against you to get their money back.
As you might expect, bankruptcy is the most extreme of all of the solutions and should only be considered by people with very large debts. Going bankrupt can lead to you losing your assets – such as your home and your vehicle – and as such the risks are large. There are also other factors to consider, such as the fact that you will not be able to obtain credit for more than £500 over a certain period of time.
Most people go for bankruptcy to provide them peace of mind regarding their debts, but in reality they should look at all other routes first. Speaking to a professional on the matter is the best course of action should you wish to take this route.