Debt has huge influence in our personal finances and is something that can feel overwhelming if not managed correctly. Situations in life may unexpectedly arise that can cause us to fall into debt, through no fault of our own. This may result in debt that can become a problem of its own, with compounding interest charges & penalties for missed payments etc. Debt might come from personal loans, medical debts, or due to an unforeseen family crisis. Debt management is very important, without adequate management of our finances, in such a situation one can rapidly lose control of circumstances and feel under real pressure. When kept at a low level, debt can appear manageable, but if not kept in check the debt can slowly mount up to become a much greater burden. If debt management becomes a problem for you, a well defined and organised plan needs to be drawn up. Seeking the help of professionals at this stage can really help lighten the load.
What is debt management?
In plain terms, debt management is the structuring and organisation of your budget on a day to day basis. With a debt management plan in place, you’ll have one monthly payment that goes out of your account that is then distributed between all of your creditors by a debt management company. A debt management plan is an effective way to take back control of your debt and stop it from snowballing. Debt management plans work best for unsecured debts such as credit cards, bank overdrafts and personal loans.
Implications of a debt management plan to your credit rating – Debt management plans do not have a lasting negative impact on your credit history. When you agree to close all of your credit accounts and establish a debt management plan, your credit history pauses. This has a temporary effect on your score, which is restored once you have left your DMP and the freeze on your credit rating is removed. In fact, a debt management plan will highlight to your lenders your positive action and willingness to pay off all your existing debts. DMP’s are usually monthly payments that are deducted directly from your bank account. Over a period of time these regular payments will have a positive impact on your payment history.
Another form of debt management is an Individual Voluntary Arrangement (IVA). IVA is a formal agreement between you and your creditors, whereby you agree to pay back your debts over a fixed period of time (typically five years). An IVA is a legally binding contract and for the duration that it lasts, your creditors cannot take further action against you. It is usually initiated by an insolvency practitioner such as a lawyer or an accountant who will charge you a fee.
Impact of an IVA on employment – An IVA should not normally adversely affect your job, except in certain instances with professions such as; solicitors, accountants, company directors etc. You may not be able to practice in such professions, or have restrictions / conditions placed against you whilst the IVA is serving. A good way to find out if your job is impacted via an IVA, is to check the terms and conditions of your contract or check with your professional membership body, trade union, or HR department.
Is an IVA suitable for me? –You should qualify for an IVA if you have a set amount still to pay towards your debts. However, it is important to consider carefully before opting for an IVA and checking to see if there are implications for your profession, therefore we advise to get professional help when applying.
Contact Debt Support Service today. You can call us or chat online with our experts to get the right solution for your financial problems.