Some years ago a famous advertisement proclaimed that ‘It’s good to talk’. When it comes to resolving debt problems the first option should always be to talk about it. Even when the problems seem intractable, you should at least try to talk to your lenders. It is particularly important that you seek debt help when you begin to miss payments or when you have made late payments or when you have begun to pay your creditors selectively over other creditors, say if certain creditors are putting you under pressure. This behaviour is unfair on the creditors who are treating you better i.e. not putting you under pressure nor sending debt collectors to your door, nor taking legal action against you.
Creditors are often seen as big bad wolves unworthy of any sympathy from a troubled debtor. The truth is that creditors have a vested interest in the critical decisions that you as a debtor take to resolve any debt issues. Creditors can be helpful and amenable particularly when you identify and confront any financial problems at an early stage with a view to resolving them to everybody’s satisfaction. Creditors deserve to be treated fairly and equally particularly when you begin to default on payments.
So what are your choices if you find that you are unable to pay your debts as and when they fall due?
So what do you say to your creditors, after you say hello? Explain the problems. Ask for help. Ask for advice. Ask what options are available. Seek to freeze interest. Seek to have penalties reduced or dropped. Find out what creditors might accept in a one-off final settlement offer, if that is an option for you? In other words, seek help from your creditors first and foremost and try to negotiate a solution or settlement with them.
Scared to contact creditors?
Not everybody is brave enough to go along to their lenders with a view to reaching agreement with them in regard to their debts. Perhaps you can’t talk to your creditors because you have little or no confidence in your own ability to do so or because you think that they will be unwilling to deal with you fairly or because you think that there are too many of them and trying to reach agreement with all of them will be too difficult. There are multiple reasons why contacting your creditors is just not an option to you.
If that is the case you should consider seeking advice from a third party specialising in debt advice and insolvency services. Such a third party should be able to explain all of your options to you and negotiate with your creditors on your behalf. Make sure and choose an organisation that does not charge for advice. There are plenty of debt help companies that offer a free service.
Debt solutions and options
There may be several different options avaialble to you for dealing with your debts. You debt advisor should run through all options suited for your situation, which allows you to decide what you think is best for you. We have outlined some of the possible debt solutions available to you below.
You may be able to enter a Debt Management Plan (DMP) with your creditors where they may agree to accept reduced payments over an extended period of time and they may even agree to drop penalties and charges. You don’t have to be insolvent to enter a DMP.
Debt Relief Order
Alternatively, you may be able to obtain a Debt Relief Order (DRO) if your debts are less than £30,000, if you have disposable income of less than £75 per month and if your assets apart from a car are worth no more than £2,000. If you are eligible for a DRO and are granted one, your debts will be written off after one year and it is much preferable to bankruptcy.
If you are ineligible for a DRO, then you might prefer to offer proposals to your creditors for an Individual Voluntary Arrangement (IVA). Your debts need to total over £10,000 and you have to be deemed as insolvent (a debt advisor will be able to determine this). If you can offer lower regular payments to your creditors from your disposable income over a five year period, then you could be debt free in about five years, the usual term for an IVA. Any remaining debts will be written off. You can then begin to repair your credit rating after another year or so. While five years may seem a long time, consider that creditors may agree to accept repayment of as little as 20% of what you owe them (sometimes less) and that you are getting off relatively lightly. Some IVAs it must be said can have a much shorter term, usually where the debtor is in a position to offer a lump sum payment to creditors.
If all else fails there is the ‘last resort’ of bankruptcy. People still hate the stigma which attaches to this process even though the law has been changed so as to make it a much more benign and friendly process. You will usually be discharged from the process within twelve months although you may have to make payments under an Income Payments Order (IPO) or under an Income Payments Agreement (IPA) for three years. On the other hand, you may not ‘lose’ your home if a relative, spouse or partner can buy out your interest in it. Just as in an IVA, your credit file will be impaired for six years.
Weigh it all up
So, there are choices for debtors and for creditors when financial matters deteriorate seriously. The trick is to make the right decision (for you) when you seek a solution. Creditors are not all bad so the best solution for you may also be the best available solution for them. And do start off by talking to someone about your debts. Talk really is cheap and silence can be so expensive… in this case literally.