Author: K D Garrow
When you are deep in debt and looking for a way out, you need advice you can trust, but this is difficult to find when most of it is offered by companies with an interest in selling you something. How do you know whether what they are advising is actually the best solution for you, or whether they just want to make money from your situation? This article is intended to explain the main options open to you for tackling serious debt problems, and to help you find the right way forward for your own situation.
Depending how serious your predicament is, you may be wondering whether your only way out is to file for bankruptcy. Sometimes this is the best way forward, but it is an extremely serious step, with lasting consequences, so you should never go into it without fully considering the alternatives. This article is to give you a bit more detail about what those alternatives are.
All the advice about the debt help options I will cover are for dealing with what are called unsecured debts. The term unsecured just means that the debt is not secured against an asset such as your house, so most debts are likely to fall into this category. You can include things like personal loans and credit card debts, but not debts like mortgage loans.
Taking out new loans to pay off old debts is worthy of an article in itself, and is rarely the best solution to a serious debt problem, so I am not going to be discussing that option here. The following debt help advice is based on the assumption that the size of your debts is well into the thousands. This advice is primarily aimed at people in the US and the UK, though the principles apply in many other places.
If you have quite a lot of debt but still have a bit of money left after paying your basic living costs, the most appropriate form of debt help is likely to be a debt management plan. These are also known as debt programs, debt consolidation plans, etc. To use this option you need advice and help from a good debt management company. They will deal with all your creditors and get agreement to rearrange the terms of your outstanding debts to make them more affordable for you. This will typically involve negotiating for reductions in interest rates and any extra fees and charges.
The end result of a debt management plan is that you no longer have to deal with your creditors at all, and just have one monthly payment to make to the debt help company. The simplification of your payments is a big help in itself, but you should also be paying out less each month, your debt will have stopped growing and you can see when you will be debt free again.
If your situation is more serious and you might not be able to find enough money each month to pay into a debt management plan, my advice is that the appropriate debt help alternative would be debt settlement. Unlike the process described above, with debt settlement you would only pay back a fraction of your outstanding debts. Getting agreement to write off a large part of your debts is how it then becomes possible for you to deal with the remainder and finally get rid of your debt.
A debt settlement company will use experienced debt negotiators to seek the agreement of your creditors to settling your debts for much less than the original amount you owe. This is not a simple process and can take varying amounts of time. The incentive for the creditor is that a good discount is rewarded by a prompt payment of the balance. As soon as you agree to start the settlement process you stop making any payments to creditors and put a set amount away each month in another account. This accumulates and is used to make payments as settlements are reached.
Debt settlement is the route that US citizens would go down, but in the UK you would use what is known as an individual voluntary arrangement, or IVA, instead. This is only available in the UK and was introduced as an alternative to bankruptcy. It produces the same end result as debt settlement in that you have a fixed monthly payment to make and a good part of your debts get written off.
Whether you think debt management or debt settlement may be the best form of debt help, my advice would be that the most important thing you can do is choose carefully which company you use to help you. You need to know that not all debt help organisations have your interests at heart, and a wrong choice could eventually leave you in a worse situation. Do not be too concerned, though, as it is relatively easy to avoid such companies when you know how, and there are many excellent ones that will give you reliable advice and do a good job for you.
The simplest way to play safe is to follow recommendations and advice for debt help companies that are known to be reputable and reliable. By using a list of organisations that you know have been researched, which are trustworthy and have a good record of success, you can apply to a few of them and go with whichever makes you the best offer.
About the Author
Read reviews and recommendations for the best debt management companies in the UK and US, as well as the best organisations for debt settlement online. K D Garrow has worked as a senior manager with significant financial responsibility for the last twenty years. His website offers free, unbiased advice on a range of debt related issues, including how to find the best IVA UK specialist.