Debt management is priority as recession bites

Citizens Advice has today revealed that debt problems have been the single largest problem for UK consumers in the last 18 months. 

In the period from April 2008 to September 2009, advisers in the nation’s Citizens’ Advice Bureaux have dealt with 3.06m debt problems, compared with 2.71m benefits problems, 844,000 employment problems, and 633,000 housing problems. 

Debt and benefit problems continue to grow at 21% per year, the charity said. 

There are several key debt management strategies available to combat this crippling problem. 

Consumers can take out a debt consolidation loan which will clear several debts at once, replacing a number of repayments with a single monthly sum. This is particularly useful for someone who has various credit card, store card and other debts, at various rates of interest. 

In addition to consolidating those payments into one, it may be possible to arrange the loan with an extended repayment period, thus reducing your monthly outgoings at the same time. 

Taking a remortgage on your home can enable you to borrow based on the equity you have built up, and clear your debts by folding them into your new mortgage deal. 

Again, when dealing with high-interest debts such as credit cards, a remortgage can result in considerable savings each month. 

Debt Management Plan (DMP) 

With a debt management plan you work with a debt specialist to renegotiate the terms of your debt repayments with your creditors. 

This can significantly reduce your monthly outgoings, and relate your payments to what you can afford, rather than what was being demanded of you before.

However, a debt management plan is not a legally binding agreement, and the conditions covering your repayments can be changed at any time by your creditors. The debt management plan will also be noted on your credit record for 6 years. 

Individual Voluntary Agreement (IVA) 

An IVA is a legally binding compromise agreement which must be approved and accepted by your creditors. By agreeing to an IVA, your creditors are accepting that you will never be able to repay your debt in full. 

Under an IVA your creditors may well agree to write off the majority of your debt in return for your undertaking to repay the rest over 5 years. 

The IVA is binding on both sides, however, and you must ensure that you meet all your repayments, otherwise the IVA will fail. 

Home owners with endowment policies linked to their mortgage may be required to encash the policy and pay the proceeds to their creditors, or release part of the equity built up in their home, under the terms of their IVA.