If you’re in debt and looking for the best solution to help, you’ve taken a huge step in the right direction. Admitting you have an issue and moving towards a solution is the perfect start to becoming debt free. However, it can be a confusing process; there are many different debt resolutions that can help, depending on your circumstances. It's important to find the right one and ask the appropriate questions to ensure you fully understand the solution's impact. Here we’ve put some tips together to help you ask the right questions to your debt advisor.
How much debt do you need?
Some debt solutions are reserved for people with a high amount of debt. You might not have enough debt to qualify for things such as bankruptcy. Other solutions have maximum limits to the amount of debt you can have to be eligible; this includes a debt relief order and an administration order. For a debt relief order, you must have under £30,000 of debt; to be eligible for an administration order, your debt needs to be under £5,000. If you want to declare bankruptcy, your debt must add up to more than the value of the assets you own. You will need to calculate the total amount of debt you have before figuring out the best solution. However, if you’re unsure, there are many advisors that can help you to find the best solution.
What are the fees?
You might not realise it, but maybe debt management solutions have certain fees you need to pay back as part of the plan. The fees vary depending on the solution, but this could impact your decision. An IVA has relatively high fees; therefore, if you have debt under £10,000, many advisors recommend you seek an alternative solution. To declare bankruptcy, you need to pay £680 to apply. However, you can get a grant or help from a charity if you’re struggling to raise the money. A debt administration order doesn’t have any upfront costs, but the court keeps 10% of your monthly payments to cover their costs. The cost of debt management plans varies, so if this is your chosen option, look at several providers for different costs.
How long does the solution take?
When moving onto any form of debt repayment plan, a good question is how long it will take to be debt free. This can vary depending on your chosen solution, your debt, and how much you can afford to pay back each month. Some solutions expire after a certain amount of time; this includes IVAs. If you ask how long does an IVA last? The general answer is five years, but it can also be extended for another 12 months. If you can make a lump sum payment, your IVA can end sooner. Many other debt solutions vary considerably based on your individual circumstances; always find out how long you will be paying the debt off to work out the best option.
How will it impact your credit score?
Many debt solutions have an impact on your ability to lend more money in the future. Administration orders are entered onto the Register of Judgments, Orders and Fines for six years. An IVA will enter your name onto the insolvency register for the duration of the payments and three months afterwards. In addition, it will be part of your credit report for six years. A debt relief order will also impact your credit record for a period of six years. Before agreeing to a debt solution, you need to consider your future arrangements and how a debt solution will impact your ability to do things such as secure a mortgage in the future. In reality, many people's first priority is getting out of their immediate debt, and future borrowing is not a concern.
Debt can be tricky and frightening to deal with, but with the right solution and support, you can come out of the other side and leave it in the past. Debt solutions can be complicated to navigate; for the best advice, contact an expert for help; several charities can give you free, impartial advice.