Essential Debt Advice and Help on Debt Solutions

Whilst owning up to financial difficulties is the hardest bit about being in debt, knowing where to go for help is the most important part.

This is because the consumer debt advice industry is beset by unlicensed lead resellers (companies that don't actually provide any advice but sell your data on). A cursory search on Google for debt advice returns hundreds of commercial websites offering many different solutions for debt problems, many of which seem to good to be true and many of which are in contravention of the Office of Fair Trading's debt management guidance on advertising.

Complicating matters further, there are actually a number of different solutions that may be a appropriate for your situation but as only a few of them provide any revenue for the advisor, the decision making process tends to be weighted in favour of them.

Which solution is right for you depends on a number of factors including how much you are able to offer to your creditors each month, how much your debt amounts to, whether you have any property you wish to protect and what your professional circumstances are.

Before seeking professional advice regarding which debt appropriate for your circumstances, you must first determine whether you have a debt problem or a money management problem. They may sound like two sides of the same coin but there are subtle but important differences that make a big difference to the way each is managed. Money Management, which is characterised by overspending on non-essential items, requires budgeting advice in order effectively control spending, whereas as a debt problem or an insolvency situation (this is where a person is unable to meet their debt repayments as they fall due), requires intervention from a specialist consumer debt advisor.

If you do have a debt problem, you should really contact one of the national UK debt charities, which offer impartial advice. They will take all of your information about income, expenditure and debts and provide the most appropriate solution for your situation. This could be any of the following::

Administration order - available to those with under 5,000GBP of unsecured debt and a CCJ already issued against them. A legal process where by the court allocates more affordable payments to your creditors on your behalf. An Administration Order also provides legal protection from any further enforcement action against you. There is a cost however, which amounts to 10% of the monthly payment.
Debt Relief Order (DRO) - this solution may be appropriate if the value of your unsecured debt does not exceed 15k, you have only 50GBP available to offer to your creditors each month (after priority debts and essential expenditure) and any non-vehicle assets do not exceed 300GBP. The DRO, which costs 90GBP to set up, will last for 12 months, after which time any outstanding debt will be written off. It also offers legal protection from any further enforcement action that your creditors may try to take against you.
Debt consolidation (unsecured) -enables the borrower to pay off existing debts by taking out a larger loan with an extended repayment period and smaller, manageable monthly repayments. This solution is only recommended for those with a high proportion of high interest debts (credit cards, store cards etc), where the loan will actually reduce interest payments over the life of the solution.
A Remortgage works in the same way as unsecured consolidation loan (except the loan is secured against an asset such as a property). Tougher lending criteria over the last 2 years has made remortgaging much more difficult.
Debt Management Plan (DMP) - If you looking to avoid bankruptcy because you have assets you wish to protect but you are not a suitable candidate for an IVA, then a DMP maybe your best option. There are two main types of debt management plan; free plans, which are administered by charities, and fee-charging debt management plans, which are usually offered by the commercial sector. The biggest disadvantage of DMPs is that they are informal, which means your creditors do not have to accept your proposed payments and can, if they wish, commence or continue enforcement action against you.
Bankruptcy - This solution will usually release you from your liabilities after one year, although in some cases, where the person administering your Bankruptcy feels you are able to offer your creditors a significant monthly payment, it can be extended to three years through an Income Payment Order/Agreement. Petitioning for your own bankruptcy can cost up to 612GBP depending on where you petition and whether you're on Income Support, in which case you may be entitled to help with the court fee element.Some professional bodies don't allow undischarged bankrupts to be members so it's worth checking with your employer first.
Individual Voluntary Arrangement (IVA) - although there are no hard and fast rules, it's unlikely you'll be able to do an IVA if your unsecured debts total less than 15,000GBP. In an IVA, you will be expected to pay back what you can realistically afford each month (what you have left over to give to your creditors after your essential living costs have been taken into account) for 5 years. The biggest advantages of doing an IVA are that the IVA protects any assets you may own, such as your home, and any debt remaining at the end of the 5 years will be written off. You may also be required to release some of the equity in your home 6 months prior to the IVA's completion. IVAs do have fees built into the monthly payments, so you should make sure you are comfortable with them, as well as what will happen if the IVA fails, before entering into any agreement.

If you are resident in Scotland, the legislation governing insolvency is slightly different and you'll need to look at:

Insolvency legislation in Scotland differs from England and Wales, which means Scottish residents will need to look at the following solutions instead of IVAs, bankruptcy and DROs:

Low Income Low Assets (LILA) - Your annual income must not exceed the national minimum wage threshold, you must have more than 1,500GBP of unsecured debt and not have assets exceeding 10,000GBP in value. You will be free of your liabilities after 12 months. An initial 100GBP fee is payable.
Trust Deed -you pay back what you can afford each month for 3 years and in return, your creditors will agree to write off any remaining unsecured debt. Your creditors can still take enforcement action against you up until the point that the Trust Deed has been protected.
Sequestration - requires you to pay a setup fee of 100GBP and you must owe at least 1500GBP in unsecured debt. At the end of the Sequestration (typically 1 year), you will be discharged from your liabilities.
Debt Arrangement Scheme (DAS)- similar to a DMP in that you must pay back you debts in full. However, unlike DMPs, DAS gives you legal protection from your creditors.

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With a number of different option available for those facing serious financial difficulties, fully understanding the benefits and drawbacks of each and knowing which is right for you can be difficult and time consuming. Fortunately, any of the national UK debt charities listed below will assess your financial circumstances without charge and will recommend the most appropriate solution for you.

Debt Advice Foundation

CCCS

National Debtline