Don’t worry about Debt!

Don’t worry about Debt!

The most common thing people do when in debt is the worst possible thing – spend their time and energy worrying about their debt.

I suggest you look for something to do about it!

You may say, ‘But what can I do? I can‘t afford to pay it back.
But here’s the thing, your creditors (the people you owe the money to) do not want you to pay it all back!
What they want is to know that you can and will pay the interest and maybe some of it back regularly. This does not even have to be a large amount. In the meantime, they will be happy to keep adding interest.
Worrying about debt can make you ill. You may still be living and working a normal life. However, the invisible burden of worry may rob you of energy and could eventually affect your health.

Don’t Worry About Debt: How to Remove the Burden?

Don't Worry About Debt: Managing Debt Worries, Exploring Bankruptcy, IVAs, and Seeking Advice for Financial Stability 2

You notice some companies promise to get you out of debt by identifying legal loopholes. These don’t always work and even if it does, you may be left with problems getting credit in the future.

The solution for most people is to establish and implement a plan to handle the situation. From the moment of doing this, the worry diminishes. The only thing that will bring back the worry is abandoning the plan!

 

Don’t Worry About Debt: How to Draw Up a Plan?

Don't Worry About Debt: Managing Debt Worries, Exploring Bankruptcy, IVAs, and Seeking Advice for Financial Stability 1

You could analyse your debt situation yourself and make a plan. But very few people can do so, on their own. The government and financial industry offer support through charities aiding those in severe debt. You can contact the charities to fill in an online or paper questionnaire.

But what if you can’t manage to do that or just feel incapable of getting started on it?
If you’re willing to take action, seeking assistance from an impartial party is the best solution.

The best person to help is someone who has:

  1. No personal interest in your affairs
  2. The expertise to set up a financial plan
  3. Got out of debt themselves
If you plan to use an official Debt Advisory organization and fill out the form yourself, find the addresses below. If you’ve used or are using either of these services, we’d love to hear about your experiences.
National Debt Line
A free telephone-based information and advice for people in England, Wales, and Scotland.
Freephone 0808 808 4000
Visit the website: www.nationaldebtline.co.uww.nationaldebtline.co.uk
Consumer Credit Counselling Service run by Step Change Charity
A charity funded by the financial services industry and specializing in debt management plans.
Call 0800 138 1111 or visit the website: www.cccs.co.uk

A word on Bankruptcy

The notion of bankruptcy holds a superficial appeal. In theory, anyone can declare bankruptcy, a legal and binding agreement. Upon approval, a bankrupt’s assets are controlled by a third party. The primary advantage is complete discharge from debts, yet control over assets, such as a house, may be lost to repay creditors.
To manage bankruptcy, you must pay court fees and attend court, which can seem daunting. It’s advisable for most to hire a licensed Insolvency Practitioner, incurring additional costs. While you can handle your bankruptcy, the Official Receivers have the right to inspect your records thoroughly. Having someone on your side ensures the best case presentation and correct procedures.
Once bankrupt you cannot be a director of a limited company and will have to declare this on credit and insurance applications, even once discharged. This means you will carry the reputation of being bankrupt for the rest of your life. 

Bankruptcy is least burdensome for those with little to lose, willing to live modestly on a low income indefinitely.

Individual Voluntary Arrangements (IVA)

The Government introduced IVAs to offer a simpler solution for managing accumulated debt.

An IVA constitutes a formal and binding agreement between an individual and their creditors. A licensed Insolvency Practitioner must arrange and supervise it, typically lasting for 5 years. Once accepted by the creditors, the IVA freezes interest and charges.

After 60 months, the IVA writes off all remaining debts. The IVA usually includes the Insolvency Practitioner’s fees. It requires a minimum of £15k debt, spread among 3 or more creditors, and the individual must offer a minimum repayment of approximately 25% to each creditor if there’s enough disposable income.

All savings and investments will need to be fully disclosed to the creditors. No further credit can be obtained during an IVA.

However, if your circumstances change over the 5 years of the agreement, the terms are still binding. For example, if you are a homeowner, and the value of your home rises during the agreement, the creditors can take 50% of this increase in the final year.
Therefore this is not an ideal solution for anyone who has significant equity in their home or property or whose income is likely to increase over the 5 years of the IVA.
I hope this helps to clear up a few misunderstandings.
love Jean
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