Different debt solutions – for different situations
Posted by | Posted in Debt Advisor | Posted on 24-01-2012
If you’re in debt, how do you know which approach would make the most sense for you? Debt solutions can be complicated things, designed to help people in very different situations, so here’s a look at three of them: debt consolidation loans, IVAs and the Debt Arrangement Scheme (DAS).
If you’d like some more in-depth information, you could visit this company‘s website. Or read on for a brief summary of each.
Debt consolidation loan
A new loan that’s used to pay off existing loans and other debts (like credit cards and overdrafts). This can help people make their finances a lot simpler, and can even reduce the monthly cost of repaying their debt – if they arrange a longer repayment period, they could reduce the monthly payments, although they’ll pay more in the long run, since interest will add up for longer.
Debt consolidation loans aren’t suitable for people who are really struggling with their debts. If they actually can’t afford their payments, they might need to look into a solution like an IVA or DAS instead.
DAS – Debt Arrangement Scheme
A debt management tool run by the Scottish government, the Debt Arrangement Scheme exists to give struggling borrowers a chance to repay their unsecured debts at an affordable rate. Their lenders would be asked to accept smaller payments, which could go on for as long as necessary (until the debts are repaid in full).
Making smaller payments can make all the difference to someone’s monthly finances, but can also affect their credit rating – they’d be entered into the DAS Register.
DAS is only available to people who live in Scotland – unlike the next debt solution (the IVA), which is only available to people who don’t live in Scotland.
IVA – Individual Voluntary Arrangement
An IVA is a formal (legally binding) arrangement between a struggling borrower and their unsecured lenders. If it’s accepted by enough of their lenders, they’ll make just one payment per month – in most cases, for five years. After that, any outstanding unsecured debt will actually be written off.
However, it’ll have a serious impact on their credit rating, and if they own any property, they might have to release some of the equity in it as part of their IVA.
Unlike the Debt Arrangement Scheme, IVAs are only available to people who live in England, Wales or Northern Ireland.
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