Debt repayments often attract a very high interest rate or charge. We may find ourselves paying minimum repayments on credit or store cards or catalogues but finding that the majority of our payment has been added back on to the debt by way of interest charges. It may be that any asset we have could be utilised to find a better way forward.
If we have equity in a property this is a valuable asset. It may well be worth seeing if our mortgage provider or another lender would be willing to lend us money so we can clear some or all of our unsecured debts. Obviously this is not something we would do lightly - extending our mortgage or taking out a secured loan will take away from the asset that we have. However if the interest rate on the mortgage or secured loan is significantly lower than the rates we are paying on our unsecured debts, then it may well be worth considering.
It may be surprising to know that some are willing to continue to pay high interest charges on debts when they are protecting a savings plan that could be used to clear debts. The loss of interest on the savings could be minimal compared with the savings on interest charges if the debts were cleared.
Cars and other possessions
It may make financial sense to cash in on other assets we may have, downsize our car for example, in order to raise funds to deal with our debts. Not exactly pain-free but maybe a good use of our asset(s).
Full & Final IVA's
One possible solution for those in debt is to offer a lump sum settlement within an IVA. To qualify, a debtor would need to demonstrate that they have little or no available income to pay the contractual repayments on the debts or to offer a monthly payment within an IVA. If they have the offer of a release of equity from their mortgage company (presumably the monthly mortgage payment will increase and will need to be taken into account in determining available income), then this could be offered to creditors as a lump sum settlement. If however the equity in the property is much more than the unsecured debt total then an IVA won't work at all.
Similarly, a more informal settlement offer could be made to unsecured creditors. In an IVA above, all creditors would have to be included and creditors representing 75% of the debt would need to agree for it to work. With an informal settlement it may be possible to contact individual creditors to negotiate a settlement of the whole debt by way of a lump sum offer. Thus debt accruing high interest rates could be settled.
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If you use the IVA Calculator we will pass your details on to one of our partners who will contact you and explain all the options available to you. They will then be able to help you set up a debt solution which is right for you.
Before entering into any debt solution you should ensure that you have considered the implications. Failure to keep up with repayments can result in bankruptcy or legal action. Lenders are not obliged to accept less in settlement of a debt than they are entitled to or to freeze interest or charges. Not all solutions involve debt write off and some solutions may result in the total amount payable increasing, or the period over which it is to be repaid increasing. Debt solutions affect credit ratings which record all financial activity for 6 years.
The debt solutions offered by our partners depend on your criteria and circumstances; including how much you owe and how many creditors you owe money to. You need to speak to a debt advisor to obtain a full assessment.