Here’s a quote from American comedian Louise Anderson: “We all think we’re going to get out of debt.” Agree? Who wouldn’t have a dream of living life debt-free? Where you still have a balance after paying the bills, without someone calling you asking you to pay your loans. All of us dream of having that kind of life.
Are debts bad? Either yes, either no. We have good debts.These are debts you used for investment that will grow in value or generate long-term income: student loans or taking out a mortgage. These could also mean debts that have low interest.
Bad debts are debts used to purchase things that quickly lose value, and would not incur long-term income for you. These debts also incur higher to highest interest rates, for example: Payday Loans and Cash Advance Loans.
It’s obvious, but we sometimes deny it. We lose judgement to what we need versus what we want. Such judgement may lead to debt addiction, and yes, that’s a real thing.
People who are addicted to debt see debt as a band aid to their problems, be it personal or financial, disregarding any plan, for savings or even going out of debt. You’d also notice this if you’re living paycheck to paycheck with no plans for the future, constantly in a financial crisis. Any adjustment or sudden expense may lead to another debt. Then as this gets worse, this would end in declaring bankruptcy or defaulting.
Debts hit every household in the United Kingdom. Statistics show that as of January 2020:
- A UK household has an average total debt of £60,363
- An adult in UK has an average total unsecured debt of £4,264
- Average credit card debt per household is £2,595
And, if you’re making minimum payments per month, it would take you 26 years and 8 months to pay off an average credit card debt.
But could you really be debt-free? Getting Out of Debt UK can help you guiding you through your finances and providing you solutions to get out of debt that are proven, with the help of experts, and assures your confidentiality.
Who are we? We are a non-profit organization striving to help families and individuals who need advice on overcoming their debts, without prejudice, restrictions, and judgement.
Getting Out of Debt UK and our predecessors are very proud of the positive impact to the thousands for individuals we’ve helped in the United Kingdom. For us, we’d like to strive for you to overcome your current challenges and continue to your debt-free future.
Let’s take a deeper dive on some debt solutions:
Administration Orders are formal debt management solutions implemented by a county court or by the High Court. You’d be making a monthly payment to your loyal court, then the court would divide the money to your creditors.
Note: Creditors listed on the administration orders can no longer take further action against you without the court’s permission. Also, administration orders are only applicable to debts lower than £5,000 and owe money to at least 2 creditors.
Bankruptcy is a legal debt solution designed to help individuals, and businesses start fresh by getting rid of debt. This can be a way for people to end their business and eliminate debt for good. Is it that easy to declare for bankruptcy and start off fresh?
Application for bankruptcy alone is not cheap: £680. How bankruptcy works? Once you’ve applied for bankruptcy, an adjudicator would review your application, and once approved:
- Your assets can be used for your debt payments
- You’d have to follow bankruptcy restrictions such as: borrowing more than £500 without telling the lender you’re bankrupt and managing a business with a different name without telling people you do business with that you’re bankrupt
- Your details would be registered and published in the Individual Insolvency Registry
Note: Not following the bankruptcy restrictions is considered to be a criminal offence.
After a year, you’re usually discharged from your bankruptcy restrictions and debts. Assets that were part of your estate during the bankruptcy period can still be used to pay your debts.
Equity Release can let you get the value (money) tied up in your home if you are beyond 55 years old. You can take the cash you discharge as a single amount or, in a few littler sums or as a mix of both.
There are two options for Equity Release:
- Lifetime Mortgage: provided that it’s your main residence, you can take out a mortgage secured on your property without losing ownership. You can decide to make repayments or let the interest be added to the loan. The loan amount and any collected interest is repaid when you bite the dust or when you move into long-term care.
- Home Reversion: offers you on selling a part or the entirety of your home to a home reversion provider. In return, you’ll get a sum of money or recurring payments.
You’ll probably get about 20% to 60% of the market estimation of your home.
Note: At the end of the plan for Home Reversion, your property will be sold and profit is shared according to what’s left on the proportion of ownership.
The Debt Arrangement Scheme is backed by the Scottish government. Just like bankruptcy, this scheme allows you to pay your debt through a debt payment program, but you’ll not be declared insolvency.
How does this scheme work? A debtor would be paying their debt with their disposable income. This program can keep going for any reasonable time allotment depending on the amount of debt and how much the indebted person can pay.
Note: Just like an Administration Order, you are also protected from creditors taking any action against them to recover their debt.
With the help of a qualified person: either an accountant or a lawyer (insolvency practitioner), you’d be creating an IVA which is a legal and binding agreement between you and your creditor and is approved by the court. Once you’ve chosen IVA, you’d be marked for insolvency and you’d be registered and published in the Individual Insolvency Registry
Just like the other options, IVAs require you to pay monthly. Repayment would be based on a sum you can sensibly bear the cost of and the creditors should agree with it. In case you’re making regularly scheduled payments, the IVA will typically last for 5 or 6 years.
Note: Before proceeding to IVA, keep in mind that insolvency practitioners charge quite a large amount for their service. This could likely cost around £5,000.
This IVA fits for business owners. This option is a great alternative in contrast to bankruptcy. It’s simpler for you to keep on exchanging, without the sanctions forced by the bankruptcy limitations.
Note: You’d probably need to open a new bank account that isn’t linked to your business and there’s a great risk of bankruptcy if you’d missed out on your agreed payments.
Discharging all or part of your personal debt through a deal can seem like a daunting task when you feel you are in debt. Even if the terms seem certain, getting a discount is often accessible to people you could seek help from.
For example, your outstanding balance on your credit cards can be negotiated to lower your balance from 50% to 70%.
Debt settlement is a contract between a debtor and a lender for a one-time payment of an existing balance in lieu of a residual balance. A person who owes £8,000 on a single credit card, for example, can go to a credit card company and offer to pay £4,000. If you decide that debt settlement is the right decision, the next step is to either do it yourself or hire a professional loan negotiator.
Note: The debt settlement industry has a plethora of scam, which lures a lot of victims, so be careful on lookin for a loan negotiator.
A trust deed moves your rights to the things you own to a trustee who may offer them to pay your lenders some portion of what is owed to them. A trust deed will regularly incorporate a commitment out of your pay, usually for four years. Just like IVAs, you’d be needing insolvency practitioners to proceed with this, which also has a seperate charge for their service.
The expenses charged for trust deeds can vary, so it merits looking at the rates of a couple of organizations.
The charge will for the most part be included for your regularly scheduled installment and covers the expense of the organization and running the trust deed. Heads up, there are IPs that may charge an upfront fee.
Note: A trust deed will appear on your credit file for six years from the date it begins. This could affect your applications for future credits..
Sequestration is like the last resort if the debtor is not able to meet their unsecured debt obligations in any way. The term sequestration itself means much the same as bankruptcy in other parts of the UK.
Sequestration can be entered intentionally by an individual presenting a borrower application who needs to draw a line under their debt management situation and push ahead, or creditors can compel a person into sequestration in order to determine what they owe be reimbursed to a limited extent or in full. Creditors or banks must be owed £3,000 to sequestrate a person.
Note: If you own all or part of your property, these assets are likely to enter the equation and might need to be sold in order to settle some of your debts.
DRO is a method of managing your debts in the event that you can’t bear to pay them. It implies you don’t need to pay particular sorts of debts for a predefined period (generally a year). You can only apply for a DRO through an ‘approved intermediary’. This is an authorized debt adviser, who will make the application on your behalf.
At the end of the DRO period, the debts included in it will be discharged and you won’t have to pay them.
Note: If the official receiver determines that the debt you have came from fraud, you will be obliged to repay your debts. Also, if the official receiver deems that you’re able to repay your debts, your DRO would be revoked.
You can choose from the wide range of options on settling your debts. With Getting out of Debt UK, we’ll help you determine which option is best for you, and you’d still avoid economic challenges. Contact us today to arrange a free consultation.