Debt consolidation could be an option for those faced with insolvency
23 September 2010
If a consumer is faced with personal insolvency, they have several options to choose from to help them clear their debt.
Each method has its own positives and negatives so it would be wise to seek advice and compare the various options on the table to find the one best suited to your own circumstances.
1. One of the most popular methods of getting out of financial trouble is through debt consolidation, which simplifies your finances with one monthly repayment for all debts.
debt consolidation means that a person can reduce the amount they have to pay back by taking out a loan to clear existing debts then clearing the loan with a single monthly repayment.
This allows you to lower the interest rate on their debt without affecting your credit rating. However, these loans can be difficult to obtain if you already have a poor rating.
2. An Individual Voluntary Arrangement (IVA) allows the consumer to write off the debt they cannot afford and helps them avoid bankruptcy.
However, it can take five years to pay off the remaining debts and taking out an IVA will affect your credit rating for at least six years.
3. Debt management is another option. This allows you to clear all your debt with one affordable monthly repayment, without the need for a loan and can stop your creditors from hassling you.
The negative aspects include the fact that it will take longer to pay off, which can increase your poor credit rating and extend the time it takes to be debt-free.
All of these forms of debt management may become more prevalent over the next couple of years as experts predict that personal insolvencies could rise in number.
According to Richard Talbot, director of Credit Action, this rise will occur because of economic uncertainty over the next one to two years.
He said: "Many people are still living beyond their means. People need to live within their means and that probably means belt tightening for quite a lot of people."