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What to do if you are in debt?
Posted on February 13, 2020

What to Do if You Are In Debt?

debt image

You may be one of the people who have at one time or another taken a loan. Be it a payday loan in the UK, a business loan, a mortgage, a student loan, or other types of loans. Owing to high-interest rates and stringent repayment plans, many find themselves stuck and unable to service their loans.

This explains the high number of people in the UK currently in debt. There are measures you could have taken to make sure you only took a loan that you could service without experiencing hardships. However, now that the damage is done, is it the end for you? What can you do to get out of debt?

The good news is that all is not lost; there are some solutions you could turn to and find help. Here are some viable solutions for you if you find yourself unable to pay your debt.

1. Debt Management Plans

Debt management plans are more flexible than the normal repayment plan or schedule that you had earlier with your financial institution.
In a typical debt management plan, you will still have to make at least one monthly payment towards settling your loan. A debt management plan allows you to pay off your loan at a friendlier rate than the initial plans offered by your bank.

How do you gain access to a debt management plan? Well, you have to first consult your creditors and brief them about the financial difficulties keeping you from honouring the agreed-upon repayment schedule. Soon after, they will draft a more affordable payment plan for you.

This solution works best for people with medium to long term, high priority loans like personal loans, overdraft, or society loans. It may not be for you if you have store card debts or credit card arrears.

2. Debt Charities

A debt charity is an organization that volunteers to offer financial advice to debtors who are unable to repay their loans. Most debt charities offer this advice for free but a few others will charge a small fee.

Their approach is that as a person in debt, you have no money to pay high prices the larger organizations ask for in exchange for their financial advice. Debt charities, therefore, have sponsors, funds and donors who help facilitate the costs involved so that you and many others in debt can find a viable way out.

Note that while a debt management plan opts to reduce your loan repayments, debt charities work a bit differently. Debt charities work on a case by case basis as opposed to offering a one-size-fits-all solution. Here, you receive plenty of insight into what you are doing wrong and how to avoid it. You get solutions to how you can better plan for money and find a practical way to pay off your accrued debts slowly.

3. Debt Relief Order

debt relief

A debt relief order is ideal for that person who barely owns any assets or property, and one who earns very little. By seeking a debt relief order, you won’t have to pay your loan for a year. If when the year is over, you are in a worse or the same financial position, then your loan is completely written off.

As you can already imagine, it takes a lot of analysis for your creditor to approve your debt relief order request. Unless they have enough evidence showing that you will not be able to repay the loan, they will not grant your request.
So who can apply for a debt relief order?

• A person who has nothing of value in their name or one who has less than £1000 savings in their account
• A person who has lived, bought property or operated a business in the UK for at least three years
• Your debt is less than £20,000
• If after paying all your household bills and utilities, you are only left with £50 or less out of your income

Debt relief orders are ideal for you if you are unable to repay an overdraft, credit card, council tax, in-store credit, rent, National Insurance Contributions, and so on.

4. Declare Bankruptcy

By declaring bankruptcy, you are allowing your creditors to possess any of your assets and sell or auction them and use the proceeds to repay your loan. Even if your assets are barely enough to pay the entire loan, declaring bankruptcy is a way to get all your unsettled debts written off.
How do you apply for bankruptcy? First, you have to open an account and complete an online application form. Some of the details needed here include your current total debt amount, your expenses/outgoings and your total income.

You may also attach letters you have received from enforcement agents or the bailiff. Send the bankruptcy application for review. Expect a final decision in about 28 days after making your application.

While declaring bankruptcy helps you start on a clean slate, there is a stiff price to pay. There will be a permanent record that you have declared bankruptcy. It is going to be incredibly difficult for you to get approved for a loan in the future because financial institutions view you as a high-risk borrower. If you manage to find a creditor willing to lend you money, chances are that they will charge you very high interest rates.

5. Offer to Pay the Debt in Full

If all the above methods aren’t viable for you, how about opting to ask for funds from close family and friends to help settle your instant loan debt? It is clear that one way or another, you will have to repay the loan or suffer a tarnished image in front of future creditors. So why not save yourself all the trouble and find other means to raise funds to pay off your loans? This option works best if you want to avoid dealing with the high interest rates or when you want to show the bank that you are acting in good faith.

You never know, even when you don’t manage to come up with all the money you owe, the lenders can be lenient on you by writing off the balance. But only if you pay a significant fraction of your loan and show proof that you have no financial backing to repay the balance.
Note that help can come in many ways. It doesn’t necessarily mean that you can take a loan and forfeit repayment, thinking you can use the ways mentioned above to avoid repaying your loan. The financial institutions and relevant authorities do a great job of investigating to see whether or not your plea is genuine.

If you are using these solutions as a way to avoid repaying your debt when you have the power to, then it may not work because you will have to pay it back, get flagged by the credit reference bureau or even serve jail time.

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