There are numerous options to help you deal with debt, but which, if any, is
right for you? In this exclusive debt crisis guide, Nick Lord will help you
decide.
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Options for dealing with debt
There are four main options for dealing with debt:
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Debt consolidation - borrowing more money but reducing your monthly payment;
-
Debt management plan – reducing your monthly payments without borrowing more
money;
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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.
