Debt Management: The 411 for Struggling Debtors in the UK « King Khan Content – Your Affordable Article Service Provider
Debt Management: The 411 for Struggling Debtors in the UK

Whenever the country goes through an economic crisis and its people are starting to feel the strain of keeping their heads above water financially, terms such as insolvency, bankruptcy, foreclosure, and repossession start circulating. They are indeed daunting and everybody fears ending up in these situations.

Before you start panicking and throwing your hands up in the air in despair, remember another financial concept that also becomes just as popular during an economic crisis: debt management.

The Importance of Debt Management

Many people who had greeted 2012 with enthusiasm and optimism had hoped things would turn around for the better. Unfortunately for everyone in the UK, it appears that they may have to face more financial challenges. Economists predict that the UK will enter into a recession—some are even saying that the country is already in a recession. The Bank of England doesn’t think that economic growth will decrease further, but neither will it have a very significant increase. In fact the Bank of England only estimates a 1% growth for 2012. Unemployment is also a problem. It is now the highest the country has ever seen since 1994 with 2.62 million unemployed or 8.3%.

These phenomena have a direct impact on every person in the country. Since their effects are generally leaning towards income squeeze and eventually debts, it is important for every consumer to know what is debt management and how can it help them avoid bankruptcy.

Examples of Debt Management Solutions

The following are the debt management solutions that are offered by debt companies all over the UK.

1. Debt Consolidation

This is a recommended method for repaying multiple debts. Debtors will take out a consolidated loan, which is the total sum of all debts incurred. The loan will be used to pay off all creditors, and debtors will only have to repay the bank or lending institution for the consolidated loan.

Debt consolidation isn’t practical for very big debts though. Debt management plans and IVAs are better solutions for that.

2. Debt Management Plan

In a debt management plan, debtors, with the help of their debt managers, will propose a new repayment scheme to their creditors. As an informal procedure, creditors may or may not agree to reduce the total debt owed, freeze the interest, and/or extend the payment terms. In fact they may or may not agree with the debt management plan at all. However, if they are persuaded, it will be a great relief for the debtor. He will only need to pay through his debt management company. The latter will take charge of forwarding portions of each payment to the creditors.

3. Individual Voluntary Arrangement (IVA)

An IVA is recommended for people who owe £15,000 or more. Those who apply for this will immediately be declared insolvent. On the other hand, this is a formal and binding agreement so creditors will be obliged to freeze your interest charges. Plus, the debtor will only be charged according to how much he can pay based on his current financial status.

An IVA can only be administered by a licensed Insolvency Practitioner.

4. Trust Deeds

Trust deeds are special debt management solutions that are only offered in Scotland. Debtors turn over some of their assets to their trustees (Insolvency Practitioners) in addition to paying a stipulated sum each month. Trustees will act as the middlemen for you and your creditors, interest will be frozen, and any remaining debts at the end of the trust deed period will be written off. It is actually very similar to IVAs.

It is necessary to have these different solutions because not all debt cases are the same. Each of these is designed to settle debts of particular ranges and severity. It won’t be practical, for instance, to enter a debt in an IVA when it can still be solved using a debt consolidation.

Even if there’s no economic crisis to speak of, everyone will benefit from at least knowing the different debt management options available.

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