The stigma of dealing with unmanageable debt can be very difficult to manage, particularly for the older generation who view debt very differently and as something to avoid at all costs.
But today many thousands of people are contemplating bankruptcy as their last solution, having found that they cannot deal with their escalating debts. This can be for a variety of reasons – a loss of a job, failure of a business, a divorce or separation or general bad luck and poor financial management over a sustained period of time. Regardless of the reason, bankruptcy is a serious procedure and one to be considered very carefully. The good news for most people is that there are alternative solutions to pursue at an earlier stage before bankruptcy becomes necessary.
Dealing with Debt
Large and unmanageable debts cause stress, pressure on relationships, worry and can lead to depression for those struggling to deal with the money worries on their own. So the first step to tackling the problem is to share it – ideally with a qualified debt counsellor.
Bankruptcy used to be the only real solution but now there are other options such as Individual Voluntary Arrangements (IVAs) and other structured debt-management plans, including debt consolidation.
Speak to Someone
A credit counselling agency will give you professional help and your adviser will work with you to understand your personal situation. This means taking a deep breath and totalling your debts, ascertaining your income and looking at your budget. They will help you to create a budget, so that you can see if it’s possible to get out of debt without needing further professional help. Often some good planning, support, discipline and a clear approach can help many people to pay off their debts without needing further services. They can transfer expensive credit-card balances to a single zero-per-cent-interest card, for example and refrain from any further spending with it. A cash-only lifestyle can also be very effective, along with identification of ways to increase income such as a second job, selling assets or working overtime.
If the debts do need a more structured approach and you can’t handle them alone, your advisor will enrol you onto a special debt-management scheme in which you repay your debts through a single monthly payment and have lower interest rates. Your debt advisor will negotiate with your creditors for you so you won’t be chased any further by them. At the end of the programme, providing you have stuck to the terms, you will be debt free.
There are also settlement plans under which a portion of your debt is waived so the principal becomes an amount you can afford to repay. Again, you make a single repayment to the debt-settlement company. Be aware that this will damage your credit score, as you’ll still be writing off debt.
Bankruptcy will continue to be the only option for some cases where other avenues are either left too late or are not appropriate. But the best course of action is always to seek out qualified and expert advice before you do anything else.
This guest post was written by Francesca, a UK-based freelance writer who enjoys sharing her knowledge on topics relating to financial matters. She writes on behalf of IVA Expert.
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