Financial difficulties and hardships have become a daily feature of the recession, with economists now talking about ‘double-dip’ recessions and stagnant growth periods. For many, the threat of unemployment, personal debt levels, rising inflation levels and salary increases is a daily worry, alongside the serious threat of bankruptcy for some experiencing the biggest difficulties.
The fact is that although interest rates have dropped to a historical low, those within existing loan, credit card or mortgage agreements may not be feeling the benefit and paying high interest rates on fixed legacy deals, where their credit records make it more difficult to switch to a competitive new product. Escalating instances of people being unable to deal with personal debt mean that bankruptcy, IVAs (individual voluntary agreements) and debt consolidation scheme take-ups are increasing.
Various high street and advertising companies offer IVAs, debt management and debt consolidation alongside bankruptcy services. However, the range of provider agencies can vary wildly in their service offered and goals. Some may promote their lack of paperwork or ‘complex’ jargon when it comes to IVAs, bankruptcy or debt consolidation products – however some of these companies may be unscrupulous – these services all require careful and informed consideration on their relative merits before a customer enters into a potentially more expensive deal. For example, a debt consolidation scheme is a better approach for customers seeking to manage problem debts before they escalate.
A poorly advised product from an unscrupulous agency could actually leave a customer in even great long-term debt, for example if interest rates were misleading, only available to a limited number of ‘good’ customers, or quoted monthly, rather than on annual bases. Customers must also be aware that low monthly payments equals longer repayment terms – and greater debt repayment overall in many cases.
It’s vital too that the customer is given the correct advice on the product that’s most suitable for them, as each has very different features and benefits. For example, unlike a bankruptcy, an IVA will allow a customer to become debt free in five years, prevent further contacts from creditors, freeze payments and interest and allow a customer to repay a single monthly sum. They also prevent court action and are legally binding agreements. Unlike bankruptcies too, they are private affairs. However, they may require equity release of the customer’s home, a minimum debt level, damaged credit ratings, no further unsecured borrowing for five years and a longer discharge period than for bankruptcy.
Bankruptcy is considered when individuals can no longer pay their debts. A bankruptcy is a publicly announced agreement, usually discharged within a year. The individual will lose control of assets, may have restrictions on their profession and long term damage to credit is common. However the advantages include speedy discharge of a year standard and effectively allows that person to ‘start again’ albeit with limitations and potential barriers to obtaining further credit, or rebuilding personal assets which have been forfeited as part of the bankruptcy procedure.
Debt consolidation is a ‘gentler’ approach and best for earlier intervention. It’s voluntary and allows an individual to replace their array of expensive, varied debts with a single affordable monthly payment, over an agreed period of time. It offers breathing space to get finances in order and means that the agency repays existing creditors and takes on the debt itself. Debt consolidation is a private affair and doesn’t affect assets or employment, as long as the scheme is adhered to.
What is important, regardless of the scheme chosen for managing problem debts, is that the individual seeks reputable advice, ideally from a charity or government sponsored source. This allows impartial and expert advice to be given which is in the customer’s best interests. As an alternative, a recommended, trusted and reputable agency or company could be considered for approaching directly – look for business accreditations and financial advice quality marks and seek independent advice where necessary.
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