Whilst the personal and business bankruptcy figures have increased as the recession has bitten there are a number of actions that can be taken to try and get debt under control. Bankruptcy is the end of the line – establishing an effective debt management strategy is the beginning. One of the key ingredients of managing debt is to restructure any outstandings so that the aggregate monthly debt burden is lower. This can typically be achieved using some form of debt consolidation loan.
Debt consolidation loans work best when the borrower still has a good credit history. Therefore, anyone who has debt problems in the past or who has experienced an historic bankruptcy may find it difficult to apply for a new loan on the best possible terms. The difference between a good credit and bad credit repayment on a £5,000 loan over 5 years is as much as £2,000 in total interest charges.
Acting early means accessing the best possible terms on any loan. With this new loan in place existing high interest debt (such as credit or store cards) or loans with high monthly payments can be paid off and a lower monthly payment over a longer repayment period should be more affordable.
A structured debt management plan may consist of a voluntary arrangement between borrowers and lenders or a legally binding Individual Voluntary Arrangement (IVA). IVA’s were introduced as a way for individuals to manage their way out of debt by having an authorized insolvency practitioner agree payment terms with lenders over, typically, a five year term. At the end of the IVA period any unpaid debt balance is written off giving the borrower a fresh start. Although the credit history will show defaults it does not have the same public notification penalties associated with a full bankruptcy and is now commonly used.
Provided the terms of any IVA are met then the risk of bankruptcy remains low. Failure to make payments as agreed can result in any lender applying for a bankruptcy order so a reputable debt management company can help agree a plan that is affordable given the family finances available.
There are a wide range of debt consolidation loans available and although the best terms are for good credit rated customers even those with past problems should be able to get a quote and access to funding. As part of a full budgetary review and a change in spending a debt consolidation loan can help those with debt problems get back in control of their family finances relatively easily.