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Debt settlement is an agreement with a creditor to accept a lower amount of money to resolve the money owed.  Debt settlement can be attempted with the original creditor, but it is usually after the debt has been sold to a collection agency that debt settlement comes into play.  There is, of course, no guarantee that the current creditor will settle.  Larger agencies are usually easier to settle with than smaller ones, but if you’re in trouble it’s an option that should be looked into no matter what.  Let’s look at some of the pros and cons of debt settlement here.

The Positive Aspects of Debt Settlement

Debt settlement can be extremely helpful to a lot of people.  For starters, you can be free of a large debt for less than the full amount owed.  Obviously, this can save you more than a small amount of money.  In many cases, the debt amount can be reduced by 40-60%.  Your credit status will be improved by no longer showing a delinquent item.  In some cases, creditors will even agree to delete negative information already supplied to the credit bureaus.  Also, debts resolved through debt settlement are no long subject to collection calls or other collection action.

The Negative Aspects of Debt Settlement

There are a few negative aspects to debt settlement, but most of them should be entirely avoidable to an informed consumer with a competent agency on your side.  Creditors do have the option of reporting the settlement to the credit agencies as a settled debt rather than as paid in full, so make sure you know in advance what they plan to do in that regard.  Additionally, make sure you receive the terms of the settlement IN WRITING from the creditor.  If you do not, they may sell the remainder of the debt to a collection agency and you may not be able to prove that the debt was legally settled.  Additionally, collection agencies are required to report any forgiven debt of more than $600 to the IRS, which can then be counted as taxable income for you.  Talk to a tax professional about that if possible.  If you have a negative net worth, you may be able to avoid being taxed on forgiven debt.

Obviously, there may be more pitfalls or advantages to debt settlement as regards your specific situation.  Only by speaking to a debt settlement professional can you be made aware of these issues.  A good debt settlement company will be reputable and accredited and be staffed with professionals who can examine your personal situation to determine what is best for you.  Most companies will be able to give you a free consultation without any obligation to go through with doing business with them.  Try contacting a few companies if you’re not comfortable with the first one you speak with.  It’s always good to be aware of how much they’re charging you and what you might save by going with another agency.  Once you find an agency you’re comfortable with, you may discover that debt settlement is the right thing to do for you.

Debt consolidation help / Debt settlement attorney

If you’re being crushed by the weight of to many debts and you’re desperate to get out from underneath, debt settlement may be the right option for you.  A good debt settlement company can help you lower the overall balance on you debts, potentially even combining multiple debts into a single monthly payment that is lower that all you exiting payments combined.  Even without consolidation, a lower monthly payment on your largest debts can result from lowering your total balance.  Debt settlement is an effective way to relieve your financial woes without declaring bankruptcy.  If you want to pay you debts, but your payments are unrealistic, look into debt settlement options today.Debt Settlement Can Lower Your Overall BalanceIf you’re receiving multiple calls every day demanding money for debts you cannot afford to pay, odds are you’re getting fed up with your situation.  You may sometimes feel like your creditors are behaving unfairly, but the truth is they are just trying to claim money that is owed to them.  If you are legitimately not going to be able to pay the full amount, creditors are usually willing to agree to a debt settlement that will lower the amount you owe them.  A lower amount is better than nothing, so creditors will often be willing to forgive the remaining money as long as you pay what you can.  When you pay off your debts at the lower balance, they are reported to the national credit agencies as paid in full.  Debt settlement can be a very useful tool in avoiding bankruptcy, which does stay on your credit report for years.  Debt settlement is the light at the end of the tunnel.  If you can use debt settlement to avoid bankruptcy, why wouldn’t you?Debt Settlement Can Lower You Monthly PaymentsThe result of lowering the total amount you owe is that your monthly payments often go down significantly as well.  Lower monthly payments means more money for other necessities, such as food, gas, clothing, or whatever you’re being forced to cut back on now to make your larger payments.  Once your regular payments are back within a range you can afford, you won’t have to deal with creditors trying to take collection action against you.  Oftentimes a debt settlement agreement can also include the dropping of existing late fees and penalties.  In addition to the lowered total due, the exclusion of these fees can be a serious relief to your bank account.Debt Settlement is Preferable to BankruptcyThe social stigma associated with bankruptcy is not entirely without cause.  While bankruptcy may be necessary in extreme cases, the truth is that bankruptcy can ruin you.  A bankruptcy stays on your credit report for up to ten years and is visible to anybody who checks it.  Bankruptcy is intended for people who cannot pay any of their debts.  If you are wiling to pay as much as you can, but need your debts to be lowered, then debt settlement is by far the better option.

Managing your debt is one of the most important things you can do right now.  Congress is passing laws that can and will greatly help you deal with your debt in a productive and positive way.  Instead of giving into the temptation to ignore your debt, seeking out a qualified debt settlement company to assist you with your debt management is a great start to ending your debt problems.

A debt management plan is a confidential program that is designed specifically for your needs with a unique solution to your debt problems.  With a good debt settlement company, debt settlement experts can assess your financial situation, assist in creating a debt settlement solution and negotiate terms of your debt with creditors and lenders.  You can make a serious dent in your credit card debt, maybe even eliminating it completely, with a quality debt negotiation company.  By negotiating your loan and debt terms to lower your interest rates and deal with late fees, you can save countless dollars and repair your credit score.If you’re considering a debt management program with a reputable debt settlement company, there are some steps you need to take to make sure the program works for you.  It is important to:

Make regular, timely payments – This will ensure that your plan goes smoothly and that your creditor/lender will continue working with you on your debts.Always read your monthly statements – It’s important to stay up-to-date with the information your lender and your debt settlement company send you.

Budget your money – You’re going to have to make sure you have your monthly payments set aside every month in order to make a serious payment.One thing that’s important to be aware of is that if your payments to your debt settlement company are late, and if you can’t deal with these debts, your lender isn’t going to want to work with you.  This could cause increased late fees, increased interest rates and continued poor credit.

In order to properly budget your money, you’ve got to set aside money every month to go towards your bills.  That means making sure your bills get paid before you go and buy a new shirt, movie tickets or ice cream.  It’s hard to budget initially, because it can go against your nature and requires a great deal of discipline.Here are some budgeting pointers that will help you with debt management (tips that your debt settlement company will want you to follow):Give yourself about 3-4 months to get your budget going.  Trying to become disciplined in a week is a bad idea, you’ll most likely fail and give up.  Give it some time.

Spend every dime on paper before the month begins.  That means laying out where money should go before the first of the month.Over-fund your groceries category.  Food always costs more than you think it will.If you’re married or living with someone, budget together.  Shared accounts means shared responsibilities, and if one of you gets evicted, you both will.

People throughout the country are asking about solutions to their debt problems.  One issue people don’t seem to understand is that more money isn’t really a solution to your debt problem.  If you think about how you got into your debt problems, you most likely made a fair salary, but overspent by using credit cards and possibly even a personal line of credit.  The issue wasn’t that you didn’t have enough money, in essence, it’s an issue of having eyes too big for your stomach.   The real issue you need to tackle is how much debt you’ve gotten yourself into.

Debt is almost like cancer; cancer is unnatural growth happening in your body.  Debt is unnatural money, money that actually has a minus sign next to it instead of a plus.  By that, I mean if you have $20 in your pocket, then you have $20 in your pocket.  If you have a credit card with a $20 limit, you not only have to pay back that $20, you also have to pay back the interest.  So instead of having $20, you have more like -$24.  When you think about debt that way, like it’s a cancer, you begin to realize how people and nations are in such horrible financial circumstances.

Think about your debt problems like someone who is dealing with cancer.  Does someone with that kind of sickness need more cancer?  Obviously not, but do they need more healthy body?  No, what they need is to get rid of the cancer.  With debt, your problem lies with the debt itself and the ways you accumulated the debt.   Your credit cards, personal lines of credit, medical bills and so forth are causing debt to choke out your finances.  Instead of putting money into a high-yield savings account, it’s going towards debt.  Instead of spending a little bit of money on a movie, you’re spending it on paying off Visa.  Over and over your finances are being choked and your financial future is in jeopardy.

So, how do you deal with your debt problems? Debt settlement companies can help you manage your debt and take care of the thousands in unsecured debt you might have.  Debt settlement companies negotiate your debt amount with lenders and creditors, doing their best to negotiate a low settlement amount.  This means that a $5,000 credit card debt might turn into a $2,500 debt, or even a $2,000 debt.  The first thing you need to do is contact a debt settlement company; then you’ll have to explain your entire situation.  It’s easy to ignore your bills, but it might be difficult to sit down and go through your bills to see exactly what kind of debt you’re in.  However, if you’re going to deal with your debt, you’re not only going to have to go through your bills, but then you’re going to have to explain your debt problem to a debt settlement expert.  Contact a debt settlement expert today and start solving your debt problems.

It may seem like you are owned by your debts, almost as if your credit card debt owns you.  However, this simply isn’t true.  There are some very serious ways to get out from under your credit card debt and other forms of unsecured debt.  They involve sacrifice and discipline, but if you’re determined, you can overcome your debts and live a financially secure life, free from collection agency phone calls.

Here are some simple tips you can follow that will help you get free from your debt problems, and have a financially secure future.

1.    Cut up your credit cards.  You can keep some for emergencies, but odds are if you have thousands of dollars in credit card debt, you have a problem using them responsibly.  Don’t feel ashamed about this, just acknowledge that you need to put them away, at least for a couple of years, and focus on living within your means instead of trying to “keep up with the joneses.”  You may even want to give your emergency card to a good friend or family member, someone you know you can trust, so that you have to go through someone in order to get that card back.

2.    Cancel all your credit lines.  If you have a personal loan or another line of financing, you’re probably paying seriously interest as well as abusing this line of credit.  You need to take a step back, work to pay off your debt and once you can do this your improved credit score will allow you to get a better interest rate on any future loans or lines of credit.

3.    Request lower interest rates on debt.  Contacting your credit cards, your personal loan lenders and other lines of credit to renegotiate your interest rates could save you a bundle.

4.    Transfer as much debt as possible to the credit card that has the lowest interest rate.  This may save you thousands of dollars over the next few years and work as a mild form of debt consolidation.

5.    Use cash.  After going through your debt and assessing your debt problems, it’s time to begin using cash for all of your purchases.  This means living within your means, ignoring any credit cards in your wallet and sacrificing in order to cure your debt problems.

6.    Commit to paying off your debts in whatever way works.  Debt settlement companies are a great resource for the many ways in which you can pay off debt.  You may choose to pay your debts off one at a time, save up money and settle or some other option.  At the very least, you should contact a qualified debt settlement company to get some feedback as to your options.

7.    Contact a quality debt settlement company.  If you’re buried under unsecured debt such as credit cards, medical bills and personal loans, you need a quality debt settlement company to help you with your debt problems.  Debt settlement companies have helped millions of people deal with their debt problems by helping them negotiate their credit card debts.  Debt settlement companies can help you pay off your debts quicker and for less than you actually owe.

A recessed economy and bursting of the real estate bubble have pushed borrowers to the point where they can no longer keep up with payments on their credit cards and consumer debt. For those searching for solutions, the decision often comes down to choosing between a variety of debt relief options. The options include debt counseling, debt consolidation, bankruptcy, and debt settlement. Of the four, debt settlement and filing bankruptcy have become the most popular of the solutions due to their advantages relating to decreasing current payments and the reductions in outstanding balances of debt.    For consumers, the two most common filings are chapters 7 and 13. Of the two, chapter 7 allows for much better outcomes for filers with steep reductions or outright dismissals of debt. Prior to the overhaul of the bankruptcy code in 2005 chapter 7’s were immensely popular for just that reason. Since the overhaul, the choice of which of the two chapters would be available to the consumer is decided by the court depending on the outcome of a means test which is the required first step in any bankruptcy filing. The means test is essentially an evaluation of the filer’s income and expenses which is then set against debt redemption standards as set by the IRS. Measured against the IRS standards, if the borrower falls short of income guidelines he can then file for bankruptcy under the auspices of chapter 7. The guidelines for qualifying for chapter 7, however, are stringent. If the means test reveals that a borrower can pay even one hundred dollars per month toward debt, the filing will automatically go toward a chapter 13 bankruptcy. In either situation, the borrowers are required to get credit counseling and budget analysis at their own expense.   Chapter 13, while providing some relief on current payments, is not nearly as consumer friendly as chapter 7 and carries disadvantages that convince many borrowers that the option is just not for them.   The biggest disadvantage is that once the terms of the filing are set, a borrower’s finances can be overseen by a trustee of the court. The invasiveness of having an outsider involved in day to day or monthly budgeting becomes an immediate deal killer and typically turns the borrower toward debt settlement.   Debt settlement, also known as debt negotiation, is a relatively new and aggressive form of debt relief offering many advantages over counseling, consolidation, and bankruptcy. The first and most immediate advantage is an approximate reduction of 50% on payments related to each account rolled into the debt settlement. Accounts which can be rolled into the settlement include credit cards, department store debt, unpaid utilities, medical bills, and other unsecured debt. Other advantages include:* Being proactive in pursuing a debt settlement can prevent wage garnishments and attachments – Letting creditors know that you’re in a debt settlement process provides assurance they are going to be paid a least some of their money. Creditors are unlikely to initiate any legal action while a settlement is under way.* Debt elimination – Outstanding balances can be reduced by 40 to 70%, depending on the creditor. On average, the collective accounts in a settlement will be reduced by 50%.* Added security for secured assets – Reducing payments and eliminating a portion of unsecured debt relieves pressure on secured assets. Debt settlements, for example, are being combined with loan modifications to help homeowners reduce their total payments toward debt and improving the chances of getting approved for new mortgage terms.* Complete payoff of debt balances – After the debt reduction, payoff schedules are flexible but generally last no longer than 48 months. The same accounts maintained with minimum payments could take over twenty five years to pay off. * Faster improvement of credit scores – The settlement of accounts allows for borrowers to begin the process of re-building their credit scores faster than bankruptcy which can remain on a credit report for ten years and stay on the public record indefinitely.     Debt settlement/negotiation is becoming increasing popular with struggling consumers because of its advantages over every other form of debt relief including bankruptcy. Consumers should still familiarize themselves with all forms of debt relief before making a decision. The best way to sort through the options is to work with an attorney with experience in all forms of debt relief to determine which will deliver the best outcome. Getting on the road to financial recovery is that simple.

Debt negotiation is a relatively new form of debt relief that is gaining popularity for its results in reducing credit card and consumer debt and because the process can also help homeowners avoid foreclosure by making home loan modifications more likely to be approved. There are two schools of thought on the subject; one that focuses on broken settlements, credit scores and direct negotiations while the other centers on the short and long term benefits of the practice. First, the arguments against debt negotiations:* Broken settlements – A settlement can be broken by either the party executing the negotiation or the customer. True, there have been instances were companies didn’t follow through on their promises to see the negotiation from beginning to end. The percentage of customers involved in those situations has been small and could have been prevented with some due diligence. Many companies have been drawn into the debt relief industry by the sheer numbers of borrowers and their escalating debt starting in the late 90’s. What had started as debt counseling run by a few non-profits mushroomed into an industry populated with thousands of new and inexperienced companies offering services far beyond the scope of the original mandate of assisting indebted customers with their debts Within those thousands of companies were those that didn’t deliver on debt negotiations, counseling, or consolidation.  Customers can also break a settlement by not making enough payments to settle the negotiation. Whether by circumstance or intention, some will stop making payments during the 18 to 48 months of the settlement process.  * Credit scores – A debt negotiation will likely decrease the credit score of a borrower that enters a debt negotiation, but it depends on what that score is at the time the process starts. A vast majority of borrowers that start a debt negotiation are already behind on payments and are consequently taking hits on credit scores so the negotiation won’t have as much of an effect. The second issue on credit scores is that the negotiation stays on the report for up to seven years. While that can be true, doing nothing will leave charge-offs and open balances on the report indefinitely. Finalized, settled, and closed accounts are ultimately a much better reflection on a credit report than accounts that appear intended and/or neglected.* Direct negotiation – Borrowers can initiate direct negotiations and, in fact, may be contacted by their lenders to do so. One problem with going direct is that there are normally several accounts to be negotiated, all of which will need to be done independently. A second issue is that the offers in direct negotiations are usually for lump sums or for payoffs within a few months of agreement. Those types of payments are often unworkable for the borrower, especially if there is more than one lump sum agreement at a time.  The benefits of debt negotiations are as follows:* Immediate relief – Upon initiation of the debt negotiation, the borrower will immediately experience an approximate reduction of 50% on payment obligations for all accounts involved in the negotiation. Reductions can vary, depending on the borrower’s ability to pay. By making payments in excess of the 50% reduction the borrower may be able to pay off the negotiated balances faster.* Debt balances cut by 40 to 60% – Depending on the creditor, balances can be negotiated down by 60% or more. For a negotiation covering multiple accounts the average reduction for the total is 50%. Once the negotiated balances have been settled the accounts are considered to be paid in full with no further obligation by the borrower to the lender.* A wide spectrum of accounts which can be negotiated – A debt negotiation can include credit cards, signature loans, department store debt, unpaid medical bills, unpaid utility bills, and more. This effectively gives the borrower a chance to wipe the slate clean without the disadvantages of filing bankruptcy.* Paying off all debts within four years – As credit card balances have accumulated for consumers over time, making payments that materially reduce the principle balance has become difficult, if not impossible. For those that can only afford to make minimum payments, a full payoff could take twenty five years or more. Calculated out over that time a borrower would pay many times the actual balance in interest alone. Contrast that scenario with a full payoff of debts over four years or less at approximately half the balance amount and the merits of debt negotiation become very apparent.* Increased odds of approval for home loan modifications – A debt settlement can enhance an application for a home loan modification by showing a reduction of consumer debt payments which allows for a greater availability of a homeowner’s income toward mortgage payments. In fact, a debt negotiation could be the difference between a successful loan modification and foreclosure.You will continue to hear pro and con arguments regarding debt negotiations. One thing to keep in mind is that credit counselors have been and still are backed by credit card issuers. When listening or hearing about debt negotiations, always consider the source. If you are contemplating a debt negotiation, be sure to conduct some due diligence before selecting a firm to act on your behalf. Visit the firm and ask enough questions to get comfortable with the partnership. Insist on a law firm experienced in debt negotiations and, if applicable, home loan modifications. Getting back on your feet will take partnering with the right firm and a commitment to seeing the process through to its completion. Take care of those issues, and you’re on your way to financial freedom.

Debt One Financial is the largest nationally based Debt Relief organization, specializing in debt relief. We understand your situation and together, with you, we will look at all the options that may be available to resolve your debt. Our goal is to provide our clients with an affordable program to get back on their feet financially within 12 to 36 months and find a real solution for the strain and stress caused by debt. With honest and informative advice, outstanding customer service, and a proven debt settlement process we can provide a fast and ethical way for our clients to become debt free and get back on the path to financial freedom..

Debt One Financial has earned its reputation by taking an honest and informative

approach to helping people find the best solution for handling their debt.D-One provides information about debt, where you may stand and what options may be available to you to assist you in managing your debt and solutions to reduce your debt. . Our team of debt reduction partners works individually with each client to help with their particular situation and personal goals. D-One maintains and continues to develop relationships with creditors throughout the country. By establishing cooperative and professional relationships with each creditor we are able to reach the most favorable settlement offers for our clients. We work directly and 100% for you!

Reduce Your Current Monthly Payments by Half

Get Out of Debt in Three Years or Less

Save 40% to 65% on Your Debt

Our debt settlement program is actually quite simple. We negotiate your settlements for you. Your current level of unsecured debt will be skillfully negotiated for you, and essentially you will end up paying a fraction of the debt. Generally, we reduce your debt by 40-60% of the current total. . Low, affordable monthly payments. We will set you up with an affordable monthly payment, which is determined on a client-by-client basis between you and a counselor at Debt One Financial Based upon what you are able to pay each month into your settlement account, we can determine how many months you will be part of the program, and ultimately be debt free. Throughout the program, we communicate with your creditors, on your behalf. We assist you when dealing with aggressive, confrontational and abusive creditors or collectors. . Settling of Your Debt. Once you have retained our services, Debt One Financial Service will commence the Service. Debt One Financial Service will advise Client of all good faith offers made by creditors and debt collectors, and of their acceptance of any offers made by Debt One Financial Service. Debt One Financial Service will not settle any account without any approval of Client, who has absolute discretion to accept or reject any settlement offer. We can only settle a debt once the full funds are available in Clients settlement account. . We work only for our clients, not for the benefit of the creditors. Becoming debt free is the first step to becoming financially secure, and debt settlement may be your best option

With credit cards becoming more available, the number of people requiring debt solutions has also risen. Over the last decade or so debt solutions such as debt consolidation and debt settlement have become the preferred tools for reducing credit card debts, without have to face the humiliating consequences of credit card bankruptcy.

Most Americans are aware of the three popular debt solutions:debt consolidation, debt settlement and bankruptcy but these are still not fully understood. Sadly, many Americans have been imprudent in the past and declared bankruptcy without exploring available alternatives to declaring credit card bankruptcy. However, in the last two decades bankruptcy laws have changed and it is now not all that easy to declare bankruptcy to get out of debt.

Credit card debt has actually turned into an epidemic in the U.S. As a direct consequence, people finding it difficult to manage their debt are turning to professional help. It may surprise many butcredit counseling services can indeed provide debt solutions for getting out of debt in a short period, shorter than you otherwise would be able to.

Debt consolidation is one of the more popular debt reduction solutions. The salient point of debt consolidations is that your debts as well as repayments are restructured. Multiple debts are combined into one with custom made payments. Companies providing debt consolidation services try to arrive at an understanding with the lender that works for the benefit of both: the lender as well as the debtor. A good credit counseling company may even negotiate a reduction in interest and extended payment periods. The amount of debt one owes remains the same but debt consolidation and the convenience of paying only one lender usually makes it easy for the consumer to pay off majority or all debt within the stipulated period. Those who are adequately motivated are able to resume the lifestyle they are accustomed.

On the other hand, a debt settlement company works towards reduction of your overall debt. A successful debt settlement may amount to as much as 50% reduction in total debt making it easier for the consumer to pay and get rid of debt.

The reality is that lenders are usually interested in finding a solution without having to hand over the debt to a recovery agent. They would rather arrive at a negotiated settlement and keep getting monthly payments even if it amounts to taking a bit of a loss or reduction in profit (reduced interest rate). A debt settlement professional usually has a preexisting relationship with most major lending companies and trained in the art of negotiating.

Now that you know what debt consolidation and debt settlement is all about, it may sound very easy but finding a good debt settlement company may not be that easy. With so many people searching for credit counseling services there is a risk of scams. If you are one of those who are in an unmanageable debt situation, it will do you good to be diligent while searching. Remember that you are already in a precarious financial position and a wrong step here can have disastrous consequences.

In the UK, there are four main options for dealing with debt:

Debt consolidation – borrowing more money but reducing your monthly payment;

Debt management plan – reducing your monthly payments without borrowing more money;

Individual voluntary arrangement – a formal legal procedure which offers a write-off of debt after a prescribed period of time, generally, five years;

Bankruptcy – a formal legal procedure, which offers a write-off of debt after a prescribed time period of, generally, one year.

It is important to stress that there is no ‘right’ way to deal with a debt problem. Each option has its own set of advantages and disadvantages. And just as important, identifying the best option is as much to do with personal and family implications as with the financial issues.

Debt consolidation: How it works

Debt consolidation involves borrowing more money to repay your existing debts. The selling point is that the payments on the new loan will be less than you currently pay on your existing debts. This allows you to bring your income and expenditure back into balance, so solving your debt problem.

The problem with debt consolidation is that the reduction in monthly payments often comes at a heavy price.

Paying back your debt through a new loan over a longer period may sound good but take careful note of the figures. While the reduced monthly payment will help your budget, the calculation of how much you will have to pay back in total will be an unwelcome shock.

Also unwelcome if you are a homeowner may be the news that your consolidation loan is secured against your house – in effect, you are taking on a new mortgage (which is why these loans are often only advertised to homeowners). Fall behind on the consolidation loan payments and you risk losing your home.

Debt consolidation: things to be wary of

Watch out for debt consolidation companies who heavily sell additional insurances to accompany the loan. You may need protection against unemployment, sickness, or critical illness, but you will almost certainly get it cheaper if you buy it separately rather than bundled in.

If you fully understand the implications of what you are doing and are able to access new borrowing at a low rate of interest, debt consolidation can be an effective approach to a debt problem. But more often than not, it leads to worsening debt and sometimes even potential homelessness. If you are considering debt consolidation you must be aware of the downsides.

Debt consolidation is big business. And that means that some of the companies who offer loans are far more concerned with maximizing their profits than in ensuring that a consolidation loan is the right option for you. Watch out particularly for debt advice or debt management companies who suggest an additional loan without full consideration of other options.

A few years ago, debt consolidation loans were only available to those with flawless credit ratings. If you had current or previous arrears on your debt payments it was unlikely that you could access more borrowing. However, there is now a wide-range of companies that specialise in lending to borrowers who are ‘credit impaired’ or ‘sub-prime’.

Of course, these companies do not do this out of the goodness of their hearts. The number of borrowers with current or past payment problems means that there is a large market for this borrowing with interest rates that are higher (sometimes much higher) than you might expect.

Remember that high interest debt consolidation loans – which are secured on your property – are a win-win for the lender. If you repay, then they benefit from the higher interest charges; if you default, they can repossess your home and get their money back early.

Debt consolidation loans can be a good option if:

You have the self-control to see debt consolidation as a ‘once and for all’ solution.

You use the reduction in outgoings to bring your budget back under control, pay back any future credit card spending in full each month without fail, and start saving for future unexpected or irregular costs;

You are prepared to shop around to identify the best value debt consolidation loan;

Debt consolidation loans can be unhelpful if:

You use some, or all of the debt consolidation loan for reasons other than repaying debt. If you need to borrow £10,000 to repay debt, then don’t be tempted to borrow £12,000 to also pay for an impulse holiday;

You don’t shop around and end up paying a high rate of interest on the debt consolidation loan;

You don’t realize the implications of taking on a secured debt against your home.

Debt consolidation loans can be disastrous if:

You continue to accumulate debt after taking on the consolidation loan.

You cannot repay a secured debt consolidation loan and lose your home.

Advantages of debt consolidation:

You can reduce the total amount you pay each month on debt repayment.

Maintains your credit rating.

Disadvantages of debt consolidation:

Normally greatly increases how long it takes to repay your debts.

Often only advertised to homeowners.

Debt management plan

How it works

Any bank, finance company or credit card lender owed arrears by a consumer has the option to seek a judgment in the county court to reclaim their money. However, where you are not trying to avoid payment but are in genuine financial difficulty, the court is likely to order repayments based on your ability to pay.

The court accepts that you must first pay your ‘priority’ debts – these are debts where non payment would lead to the loss of your home (mortgage or rent payments); loss of an essential utility (gas, electricity, telephone, or water payments); loss of an essential item (cars or other hire purchase items); or could theoretically lead to imprisonment (magistrate court fines or council tax payments).

The court further accepts that you need to make other payments to maintain you and your family – so reasonable amounts for housekeeping, travel, clothing, and other similar items are taken into account.

What remains after this exercise is a guide to the amount of money left to repay your bank, credit card and other ‘non priority’ credit debts. The court will make a repayment order based on the figure but also take account of monies owed on other credit agreements. In addition, the court will freeze the interest charges so that the debt no longer increases.

The negotiation of reduced debt payments simulates the approach taken by the court. It involves producing a detailed income/expenditure schedule, showing how much ‘spare’ money is available after priority payments have been made and proposing a fair distribution of this money. At the same time, a request is also made for further interest charges to be frozen.

Arranging a debt management plan is something that you can do reasonably easily yourself, particularly if you use the self-help booklets available from National Debtline or your local Citizens Advice Bureau. However, it is also (unfortunately) true that the banks and card companies will sometimes respond more positively if a debt advice agency writes on your behalf.

Fee charging debt advice agenciesDebt advice agencies offer a similar debt advice service to the Citizens Advice Bureau but will also administer your reduced payments negotiated under a debt management plan. Your local CAB will often arrange for you to make reduced payments, but you will be responsible for making these payments.

The fee charging companies will also arrange that you pay your money over to them and they will pass it on. However, this additional facility comes at a price – the fee charging companies typically keep up to 15% of your regular payment as their fee and the whole of your first month’s payment may also be swallowed up in administration costs.

Of course, paying somebody else to administer your payments means it takes longer to repay your debts. There is therefore little point in paying for a debt management company unless you think their service is worth it.

Advantages of debt management plans

Allows you to bring income and expenditure back into line without taking on more borrowing;

You can follow this option by yourself or with the help of a no fee charging debt advice agency.

Disadvantages of debt management plans

There is no guarantee that your creditors will accept the reduced payments and/or freeze future interest payments;

The time taken to repay your debt will increase. The time will further increase if you pay your debts through a fee-charging debt management company;

Your credit reference file will show details of the Debt Management Plan. This will affect your ability to get credit in the future.

Debt management plans can be a good option if your financial problems are caused by a temporary reduction in income and the situation will improve in the near future.

Debt management plans can be unhelpful if:

Your ability to pay your debts will not improve within 12 months.

Debt management plans can be disastrous if:

The fees taken by commercial debt management companies and the refusal of banks and credit card companies to freeze interest means that your debt steadily increases.

Individual Voluntary Arrangements

At best, an IVA can be an excellent solution for somebody faced with an overwhelming debt problem. At worst it provides a moneymaking opportunity for the increasing number of companies that advertise IVAs. You must make sure that this is a suitable option for you and that the company operating the IVA fully understand and represent your financial situation.

How It Works

A specialist insolvency adviser, called an Insolvency Practitioner, draws up a proposal for you to repay a specified amount in full repayment of your debt. The payment can be made in a lump sum or over a period of time – often up to five years. The companies owed money agree to write off any debt still outstanding once you have made the agreed payment. The amount paid under the IVA is normally calculated with reference to the amount that would be collected if you were to be made bankrupt.

There is normally no up-front fee to pay in using an Insolvency Practitioner – the costs of the IVA are written into the arrangement. But you should be aware that the costs can be high (we are talking thousands of pounds for even a simple IVA). It is vital that you understand how the costs will affect how much you will pay and the proportion of your payments that will be paid to your Insolvency Practitioner rather than to repay your debt.

Advantages of IVAs:

Allow you to repay your debt at an affordable rate over a reduced period of time. Alternatively, the IVA may be proposed on the basis that your family or friends are prepared to help meet your debts;

Offers the advantages of bankruptcy but without some of the restrictions and disadvantages.

Disadvantages of IVAs:

The costs of setting up an IVA can be surprisingly (some would say outrageously) high;

You may have to pay an upfront fee;

Defaulting on the payment arrangement can lead to bankruptcy;

The regulation of Insolvency Practitioners is fragmented and many consumer groups report situations where Insolvency Practitioners seem more interested in the fees that they earn rather than the success of the IVA;

Your credit reference file will contain details of your payment default.

IVAs can be a good option if:

You face a large debt problem and a debt management plan will involve payments over a greatly extended period;

You are faced with bankruptcy but wish to avoid the associated restrictions and disadvantages;

You identify an Insolvency Practitioner who you can trust to propose a realistic, workable, and, if appropriate, sustainable arrangement which works to the benefit of both you and the companies to whom you owe money.

IVAs can be unhelpful if you don’t shop around to find an Insolvency Practitioner who understands your problems and who you feel you can trust.

IVAs can be disastrous if you agree to make regular payments that you know you won’t be able to sustain.

BankruptcyBankruptcy is a formal legal process that draws a line under your debts. It involves the sale of any items of value that belong to you (but some items, such as your basic household goods will not be taken). It may also require that you make regular payments from your income if you can afford this after you have paid your essential domestic and work costs.

Bankruptcy is not an easy way out of paying your debts but it is an option to consider if you face overwhelming debt pressure and can see no possibility of being able to meet your liabilities. It is generally a more attractive option for those with few or no assets.

How bankruptcy works

Bankruptcy can be started by the person who owes money or by the firms who are waiting for missed payments. Banks and other finance companies will generally only make someone bankrupt if they think if it is financially worthwhile. However, this does not stop them threatening bankruptcy even where they know that they will not follow through. If you are being threatened with bankruptcy, you should get advice urgently (your local Citizens Advice Bureau or other free independent advice agency is a good starting point).

Once bankrupt, you are under the control of the bankruptcy trustee. They will arrange to sell items of value belonging to you (including your house if you are a homeowner and the sale value is more than your mortgage debt) and will want to discuss what regular payments you can make. The trustee has the power to examine the way you conducted your finances prior to bankruptcy, particularly if you gave away or sold assets. You are required to cooperate with the trustee.

A recent change in the law means that those experiencing bankruptcy for the first time can normally expect to be discharged after a maximum period of one year. You are then released from your debts (although you may be required to make regular payments for up to three years). You are expected to learn from your experience. People who go bankrupt again get a much tougher time.

Advantages of bankruptcy:

Limits the period over which you repay your debt;

Provides legal protection in respect of your debts;

Disadvantages of bankruptcy:

You are subject to the control of the court;

You face the loss of assets other than those necessary to satisfy your domestic needs, your tools of the trade, and vehicles you need in the course of your employment (which does not include travel to and from work);

Gas, electricity, and telephone contracts will need to be put in to the name of another adult who lives with you. If there is no other adult, you will have to change to a prepayment system or lose the service;

You cannot hold certain public offices while you have not been discharged from bankruptcy, nor can you continue as a director of a limited company;

Your access to credit will be severely restricted until you are discharged; thereafter you will pay higher rates of interest until you have re-established your credit rating;

Some debts will not be included within the bankruptcy. These include mortgage and other secured debts, magistrate court fines, debts payable after personal injury claims, and debts to the student loans company;

Any determination by the court that you have acted dishonestly or recklessly can lead to restrictions on your discharge from bankruptcy;

You will normally lose the use of your bank account and will be forced to open a ‘basic’ account with no overdraft and limited other facilities;

You should assume that your employer, friends, and neighbors will find out about your bankruptcy. Your bankruptcy will be publicized in the local Press and is available to anyone who wants to request information about you;

You will have to pay £475 to petition for bankruptcy.

Bankruptcy can be a good option if:

You face a substantial debt problem, few assets, and limited ability to pay your debts;

Bankruptcy can be unhelpful if:

You are attracted by the advantages without fully considering the downsides of the bankruptcy procedure and aftermath;

Bankruptcy can be disastrous if:

You have assets which will be seized by the bankruptcy trustee;

Your employment, business or personal relationships will be detrimentally affected.

Bill Bailey is a freelance financial journalist. More financial advice at http://www.schnafflehound.com/finance