Unsecured Debt Solutions in the UK and Who Can Benefit
There is not one solve-all, quick-fix solution for unsecured debtors to work their way out of the red and into the black. Differing levels of debt, incomes, and types of creditor have led to a range of debt-easing options to suit most situations. Here are four ways to quickly and safely work your way out of unsecured debt.
Although in the long term, a debt consolidation plan could increase the total amount you pay back to various creditors, it could help you manage repayment packages so they are better suited to your financial situation. Debt consolidation involves seeking an additional loan to repay your current level of debt. This loan can be repaid at a lower and more achievable rate than your previous repayments, giving you more breathing room.
Often debt consolidation turns an unsecured loan into a secured loan against an asset such as property serving as collateral. This can lead to a lower interest rate as the loan from the lender will be considered to be less of a risk due to the presences of collateral.
Who Can Benefit? Parties with unsecured debts with high interest rates.
Debt Management Plan
A debt management plan incorporates the help of a financial advisor working on a debtor’s behalf to organise more agreeable repayment rates amongst creditors. If your debt repayments are outstripping your income, a debt management plan could reorganise the payment packages in line with your financial situation. This could extend your repayment period due to the lower rates, but can make your financial situation more manageable.
Debt management companies such as In Control will work on your behalf, conversing with your creditors and encouraging a restricted repayment plan. The advisor may even be able to persuade the creditors to freeze interests and charges.
Who Can Benefit? Debtors who can’t quite meet their monthly repayments.
Debt Relief Order
A form of insolvency aimed at people with minimal income or assets and a debt of less than £15,000; a debt relief order lasts for a 12 month period during which creditors cannot take action against the debtor. If at the end of this 12 month period, the debtor’s situation has not improved, the debt will be written off.
This is not quite as ideal as it sounds, as there are a number of disadvantages to taking out a debt relief order. The debt relief order will appear on your credit file for six years and can inhibit your future professional activity – prohibiting you from promoting, managing or setting up a limited company without direct permission from the courts.
The Citizens Advice Bureau offers a detailed breakdown of the potential pitfalls of a debt relief order.
Who Can Benefit? Debtors with minimal income and assets.
Something of a last resort; bankruptcy has significant disadvantageous repercussions in the long-term. The bankruptcy term is usually 12 months after which your unsecured debts will be written off, but any income or assets may be seized, except those essential to your quality of living or job, to repay part or all of the debt.
Bankruptcy will also have a serious impact upon your credit rating, staying on your credit file for six years. During this period you will not be able to open up any accounts other than a very basic bank account. Furthermore, any spare income you acquire may be used to make contributions to your creditor throughout the bankruptcy term.
Money Super Market offer additional information and advice about bankruptcy and the effects of pursuing this option.
Who Can Benefit? Debtors who have exhausted all alternatives.