Posts Tagged ‘finance’

If you find yourself getting into financial trouble, a debt management company could be the solution to keep you from falling into financial ruin. Professionals can often help you get your finances back on track and give you tools to keep you out of future trouble. If your income to debt ratio is too high, it’s time to start considering your options and save yourself from future financial headaches.

The role of a debt management company is to work with you and your creditors to make your debt more manageable and keep you from bankruptcy. Types of debt that qualify are medical bills, student loans, credit card bills, utility bills, IRS debt, and various other kinds of unsecured debt. They can also provide “credit repair” services, or help fix mistakes on your credit report.

A good debt management company will usually provide several services. They will examine your income and expenses and work with you to determine a livable budget while allocating a set amount to put in a special account each month that will go toward paying your debt. Counseling clients on income management is also a part of the services they offer. A “debt management plan,” or DMP, in writing should be provided to clients.

The debt management company will contact your creditors and work out a repayment plan. Creditors will often lower monthly payments, waive late fees, and lower interest rates to make it easier to repay your debt. The creditors are then paid monthly, semi-monthly, or even weekly from the debt repayment account.

Collection agencies and creditors will stop calling for payment and stop sending bills when you work with a debt management company. They know that by working with the debt management company, they are more likely to be paid, and are more than happy to make arrangements.

Be careful when choosing a debt management company. Make sure they are accredited or listed with the Better Business Bureau in the company’s area, and examine their fee structure and service agreement. Shop around and ask for referrals. Keep in mind that Not-For-Profit doesn’t mean the company doesn’t make money from your business; it only means they don’t pay taxes. Finding the right company can make debt management a relief rather than a nightmare.

An Individual Voluntary Arrangement might be the right solution for your debt, depending on your circumstances. Sometimes, and IVA is the only thing that can save you from bankruptcy. While the IVA may have its advantages, the disadvantages can be very restrictive, so explore your options carefully.

To qualify for an IVA, you must be at least £15,000 in debt and you must have a regular income. If your income doesn’t leave anything left over after your essential monthly bills, bankruptcy may be the better option. An IVA is a legally binding agreement arranged through an insolvency practitioner between you and your creditors, and can last for up to five years.

With an IVA, your insolvency practitioner meets with your creditors and presents them with a plan of repayment. The creditors will usually agree to plan to reduce your debt to pence per pound, sometimes up to 75% less than the original debt. At least 3/4 of your creditors must agree to accept the plan for it to become legal. If they don’t, the practitioner must amend the terms until an agreement is reached. Once it is approved, you pay a monthly sum that is split between the creditors. Part of the insolvency practitioner’s fees will come from that monthly sum.

The advantages of an IVA can be numerous. During an IVA, you are not in danger of losing your home, your amount of debt can be significantly reduced, interest charges are stopped, and the fees associated with an IVA are usually much less than those incurred by bankruptcy. The monthly payments you make will be based on your income, and change with your income as well. IVA’s also have less stigma than a bankruptcy, though both stay on a credit file for six years. With an IVA, the debtor is not prohibited from obtaining credit during the process.

Although less costly than bankruptcy, compared to other debt solutions, an IVA can be expensive. Insolvency practitioner fees are high. If you choose this method, be prepared to have your finances closely scrutinized for the duration, and be prepared to explain any income anomalies to the insolvency practitioner. Also, be prepared to hand over an extra money that comes your way during the agreement, like pay bonuses or inheritances. If you should fail to meet the IVA terms, you may be left with bankruptcy as your only alternative.