Debt spiral misery for millions

Debt has become part of everyday life, affecting more people than ever before. It has even taken its toll on worldwide stock markets, with so-called ‘sub prime’ lending at the heart of the recent stock market collapse that caused chaos with traders around the world.

And now MoneyExpert.com’s new Debt Index has revealed that more than 2.48 million adults are very concerned about their ability to keep on top of their debts.

No wonder. With interest rates on the rise and day-day living increasingly expensive, many people are actually borrowing more in order to stave off short-term shortages. According to MoneyExpert one in four adults with debts has increased the amount they owe in the past three months as they struggle to juggle their borrowing burden.

It is no surprise that many people have lost control of their debts and many will go bankrupt. But is there another option?

Debt and how to cope

Often people find debt difficult to cope with because each source of debt will charge a different rate of interest. Confusion comes easily when you’re charged different amounts for different products – overdrafts, credit cards, store cards and personal loans will all charge you different rates. And then there’s the mortgage…

Example standard rates of borrowing:

Product % APR (comparable rate of interest)
Credit Card 16.5%
Overdraft (authorised) 12.5%
Store card 25%
Personal Loan (£3,000) 13%
Mortgage (3 year fixed) 6.38%

Consolidation

Consolidating your debts into one loan can help you to cut monthly repayments and boost your wealth while also giving you a better chance of becoming debt free. You can take out one loan to repay all your creditors and then concentrate on repaying that loan. This is known as a consolidation loan.

Banks and building societies plus other finance firms offer personal loans for up to £25,000 which you can repay over periods as long as seven years. You can also consider extending your mortgage or alternatively look for a secured loan which is secured against your house. This can be paid off over a longer period and you can borrow higher amounts.

You should also have only one payment a month and will be able to keep track of your debt.

Click on MoneyExpert.com’s Debt Consolidation calculator to see what you can save.

IVAs and Bankruptcy

Bankruptcy can seem like an easy solution – you declare yourself bankrupt and you can walk away from your debts. But it’s not that easy. Apart from a few exemptions, control of your assets, including your house and car, will be handed to a bankruptcy trustee and can be sold. While you are a bankrupt, you will be barred from running a business or holding any public office. You will no longer be a ‘bankrupt’ a year after being declared one, but the Land Registry and credit agencies will always have a record of it.

How can an IVA help?

As the number of people in dire straits rises, so too does the number of people opting to take an Individual Voluntary Arrangement, or IVA, as a way out of their difficulties.

IVAs can take away both the worry that comes from uncertainty and reduce the threat to key assets, such as your home. They give you the chance to clear your debt by repaying an affordable proportion of what you owe. It’s an official, formal agreement that is legally binding and must be approved by a licensed insolvency practitioner.

Under an IVA, the amount of debt is fixed, sometimes even reduced, and the amount of interest owing is frozen, too. The debtor then makes regular, agreed payments for a specified term, after which an agreed portion of the debt can be written off, sometimes by as much as 75%.

An IVA will still appear on credit files for six years after the IVA finishes. However, if you complete your IVA successfully, you will be recorded as having managed your debt, which must stand in your favour in the future.

Consolidate your debts now – see how much you can save with MoneyExpert

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