Financial Resource

The problem with debt is that it will continue to grow unless you actively take steps to get rid of it.  Even if you curb your spending, your overall debt is likely to increase faster than you can pay it back because interest charges and late payment fees can really mount up and add to your overall debt burden.  The first step to becoming debt free again is to acknowledge that you have a debt problem and decide what you are going to do about it.

You may find yourself delaying taking any action simply because you are not sure what to do.  You might have heard of several different solutions, but not quite understand how they work or whether they are right for you.  You have to take action, so you first need to gain an understanding of the possible routes forward, so that you can begin to make progress.

One article cannot cover all possible solutions for all the different situations people find themselves in, so I am going to talk about the most common circumstances.  Most people who get into debt are struggling to repay either goods bought on credit using cards or through personal loans, bank overdrafts, etc.  All these things are types of unsecured debt, and you can use different kinds of debt payment plan to get rid of this sort of debt.  The only things that cannot be included in debt payment plans are secured debts such as mortgages.

The most frequently used type of debt payment plan is properly called a debt management plan.  The use of these is often also referred to as debt consolidation, though should not be confused with the type of consolidation that involves taking out a loan.  No debt plans involve any new borrowing.  They are about paying off your old debts as quickly as possible, which is unlikely to be achieved by taking on new debt.

Debt management plans are set up by debt companies.  The first thing they will do is talk to all your creditors about the terms of your debts and set about changing these so that you pay less in interest and have a more affordable repayment schedule.  When this has been done with all creditors you will have only one payment to make each month, and you pay this direct to the debt company, which they then pass on to creditors in line with what they have agreed.

The benefits are that you only have a single payment, which is within what you can afford to pay and you know when you will finish making payments and become debt free again.  For a debt management plan to work you need to have a steady income and enough cash spare after your household expenses to pay the amount required by the debt payment plan.

If your situation is more serious than this and you do not have much or any money left over each month, there is another type of debt payment plan that may still be appropriate.  This is called debt settlement, and is a radical approach that brings down the total amount you owe by getting substantial amounts of your debts written off.  Under this type of plan you use a debt settlement company to negotiate with your creditors to settle each debt at a huge discount.  They are encouraged to do this by the offer of paying off the settlement amount straight away, so they no longer have a bad debt to chase.

Once you start the debt settlement process, you make no more payments to your creditors, but pay money into a new account instead.  The money you pay into this accumulates over time and is used to pay creditors as and when agreements to settle debts are made.

These are the main two types of debt payment plan that will effectively deal with the majority of serious debt situations.  Which one you use will depend on how serious your situation is.  In the UK the solution for more drastic circumstances is an IVA rather than debt settlement.  IVAs are unique to the UK and are an alternative to bankruptcy which allow you to make a monthly contribution to your debts and write off the remaining debts at the end of a set period.

Whichever kind of debt payment plan you use to get rid of your debt, you are going to need a specialist debt company to advise you and set it up.  Deciding to take action and find a debt company is the most important step you will take in the process of becoming debt free.  It is very important to approach only companies that will give you honest advice, and tell you what the best solution is for you.  Less reputable companies are likely to only tell you about the solution that will give them an income, rather than what is most likely to permanently deal with your situation.

You can protect yourself by only approaching very well established and reputable companies that can show they have already turned around the lives of many other people.  As an extra safeguard you should always apply to a few companies so that you can judge which one you think is making the best offer for you.  The easiest way to start is to follow well researched recommendations for organisations that are known to be responsible and trustworthy.

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