Written in collaboration with MoneyPlus

We’re all feeling the pinch when it comes to our finances. But if you are having to rely on debt to get through the month, are having to take more finance out just to make ends meet, or you’re juggling so many different financial agreements that your debts are spiraling out of control, then it’s time to take some necessary steps to get to grips with your debts. In this article, we take a look the possible action you can take for getting out of severe debt. 

Consolidating your debts

One option for managing multiple debt agreements is to look at consolidation. Consolidation is the process of taking out a larger loan that will combine multiple liabilities into one agreement. This will reduce the number of debts you have, under one interest rate and under one monthly repayment. 

However, it is worth bearing in mind that with consolidation loans you’ll often pay a higher interest rate, in comparison to that of a personal loan, simply because the nature of the loan is used for debt management. Your credit score and financial history will also play a role in how much interest you’ll ultimately pay.  

Another disadvantage of a consolidation loan is the onus is on you to coordinate and consolidate your liabilities. This will include: determining the amount of credit you need – you’ll need to factor in any outstanding interest and early repayment fees on top of the balance outstanding, applying for the necessary financing and then, once the money is in your bank, paying off the other liabilities for the consolidation to take effect. There is a potential, if you don’t get a big enough loan, that you still could be managing multiple liabilities with this option

Individual Voluntary Arrangements

If or when the debt you carry becomes a constant worry, you’re struggling to pay your household bills, you’re concerned about creditors contacting you, or you’re regularly missing repayments or getting into arrears, an Individual Voluntary Arrangement (IVA) could be a more suitable solution. 

With IVAs you work with expert debt advisors to set up an agreement between you and your creditors to repay the money you owe; in a manageable monthly payment, often over an extended period but for no more than 5 or 6 years. At the end of the set term, any outstanding debt is written-off.  Once in place, your creditors are not permitted to contact you and any contact is managed through a debt management company or insolvency practitioner. 

Individual Voluntary Arrangements are a form of insolvency but different to bankruptcy in that you are afforded more protections if you are a homeowner or have other assets you need to protect. Individual Voluntary Arrangements will impact your credit score and a record will stay on your credit file for 6 years. An IVA can only be applied to unsecured finance such as credit cards, personal loans, overdrafts, household bills, buy now pay later financing and payday loans. 

Having some degree of financing is usually not a problem, it is even encouraged in some ways as it offers opportunities when you need a larger loan, such as a mortgage. But when debt becomes unmanageable or you become reliant on it to get through the month, it’s best to take steps to get it back under control. If your debt is causing you serious worry and stress, consolidation loans and IVAs are just a couple of options that can help you to breathe more easily. 

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