When you’re in the midst of debt, it’s often impossible to have hope of a debt free future. Endless letters, phone calls, knocks on the door. You don’t even want to think about how much you might owe.
We want to reassure you – if you take the right steps and choose a suitable debt consolidation solution, there is a way to work your way out of your debt problem.
In this guide we walk through six proven techniques for debt consolidation – for debt problems in the range of hundreds, up to tens of thousands of pounds.
Proven tactic one: Apply for an overdraft
An overdraft could be a suitable solution for debt consolidation if you have a reasonably low level of debt in the range of hundreds, or possibly thousands, of pounds as well as a average or above credit score.
Proven tactic two: Apply for a personal loan
A personal loan is perhaps the most ideal debt consolidation solution, as they tend to offer the lowest APR and the most favourable lending terms. However personal loans also require a relatively healthy credit score. For those with poorer credit ratings, they face either a declined application, or an approved personal loan with a high interest rate.
Proven tactic three: Apply for a secured loan
If you can’t get approved for a personal loan, and an overdraft won’t cover your debts, you may want to consider a secured loan.
Secured loans put up some form of asset as an insurance against the debt. Should you fail to keep up with your repayments, the lender has the peace of mind of being able to fall back on the sale of the asset to cover the debt.
Secured loans come in the form of:
- Logbook loans
- Equity release
As well as the risk of having your asset repossessed should you fall behind on your loan commitment, another drawback of a secured loan is that you can only borrow a portion of what the asset is worth, which may not cover your debt consolidation needs.
Proven tactic four: Use an Individual Voluntary Arrangement
An Individual Voluntary Arrangement (IVA) is a debt consolidation solution that increasing numbers of debtors are using to resolve their debt problems.
This solution offers a repayment schedule that is based on your income and expenditure, which ensures that you’re genuinely able to afford the ongoing payments.
An IVA lasts for between 60 to 72 months, after which time your remaining debts (up to 80%) will be written off, allowing you to start your financial life over.
An IVA can cover non-priority debts, which include:
- Personal loans
- Bank or building society loans
- Money borrowed from friends or family
- Credit card, store card debts or payday loans
- Catalogue, home credit or in-store credit debts
An Individual Voluntary Arrangement cannot be used for debt consolidation for the following debts:
- Court/legal fees fines
- TV Licence
- Council Tax
- Gas/electricity/utility bills
- Child support and maintenance
- Income Tax, National Insurance and VAT
- Mortgage, rent and any loans secured against your home
- Hire purchase agreements
To qualify for an IVA, you must:
- Have liabilities that outweigh your assets
- Be unable to pay debts that are due
- Owe at least £5,000
Proven tactic five: Use a Debt Relief Order (DRO)
A Debt Relief Order (DRO) is a form of insolvency which can be used for debt consolidation.
A DRO runs for a period of 12 months, after which time your debts will be written off if you still can’t afford to repay your debts after the year ends.
To qualify for a DRO you’ll need to prove that you have £50 or less to live on each month, after your bills have been paid, and owe less than £20,000 in total.
Proven tactic six: Enter a Debt Management Plan (DMP)
Just as with an IVA, Debt Management Plans will roll all your debts into a single monthly payment, which is paid via a Debt Management Agency.
The defining difference between IVAs and DMPs is that an IVA will write off your debts at the end of the term, whereas a DMP involves the full repayment of your debts.
Debt Management Plans can be used for debt consolidation on non-priority debts.
We hope that this blog has gone at least some way to proving that there IS a solution out there for you when you desperately need debt consolidation.
If you’d like to talk about your debt problem with the experts, our team are on hand to talk. Call us on 0800 002 9051, or send a message via our contact page and we can call you back.