Long Term Debt Problems
Debt counsellors
Debt management companies can offer an excellent service for
large amounts of out of control debt. If you are having difficulties
keeping up with any repayments, then do seek advice from a debt
counsellor. They are professionals and know how the creditors work.
If you have your debt management plan accepted, a singular
monthly payment is made to the debt management company, who
in turn pay your respective creditors with monthly payments.
The monthly payments that the debt management company pays to
the creditors, is negotiated on your behalf by the debt management
counsellor. Negotiations are all to do with the amount of debt you
are in, amounts you can afford and the term you have left. Most
creditors have different policies for handling situations like this.
Depending on the creditors terms and conditions and the
counsellors negotiation skills, some credit agencies reduce and even
freeze interest rates for the term of your loan, some companies
extend the term interest free with a lower monthly payment. It
really does depend on the creditors and there policies as to what
deal you will receive.
A debt management programme can take a long time to clear any
outstanding debt. However programs like this are often an excellent
solution. Your debt is handled by professionals, this relives the
stress of debt and gives you piece of mind knowing you have a
professional taking care over your debt.
There are a couple of things you need to be wary of. Some debt
management companies require a monthly fee which can be quite
costly. Others require a one off start up fee. It is best to look into
debt management company’s policies before committing to a debt
management plan. Charity based companies are usually the best
http://www.cccs.co.uk offer a service for free. CCCS only use the
interest from your monthly payment to your creditors as payment.
Bankruptcy
When an individual is deemed bankrupt, it means the individual has
become insolvent. Personal insolvencies in England and Wales are
dealt with usually under the Insolvency Act 1986. When the court is
satisfied that there is absolutely no hope of the debt being paid, a
bankruptcy order is issued on the petition of the debtor (which is
you) or one or more of your creditors who are owed £750 or more.
The official receiver investigates the financial affairs of the debtor
for the period before bankruptcy and is appointed to act as trustee
from the date of the bankruptcy order until a trustee takes control.
Bankruptcy is by no means the best way of dealing with your debts.
When an individual becomes bankrupt there are severe restrictions
placed against a bankrupt person, for instance:
· Acting as a director of a company, starting, managing or
promoting a company without the consent of the court’s
· Continuing to run a business in a different name from that for
which the bankruptcy was made without informing all
associates doing business with you
· Obtaining credit of £250 or more without disclosing to the
creditor, your bankruptcy
Upon bankruptcy all banks will be informed of your insolvency, bank
accounts will be closed, all future assets lost, and all hire purchase
items will be returned. In effect you will be left with nothing but the
home you live in. However you will be debt free. Only as a last
resort should you opt for bankruptcy. The ability to obtain a new
bank account or any future credit will be considerably harder to
achieve for a term of around 7 years.
Individual Voluntary Arrangements (IVA)
An Individual Voluntary Arrangement (IVA) is a legal process for UK
residents with major debt problems. An IVA can be arranged with
the help of professional insolvency practitioners.
An IVA can be effective at curing debt problems without many of
the negative aspects that can be produced by bankruptcy. An IVA is
an especially viable solution for those with equity to protect.
Depending on your circumstances, IVA’s can write off a high
percentage of your debt. If you keep up the arranged monthly
payments, you can be debt free in as little as five years.
You the client agree to the details of an IVA with your creditors at a
creditors’ meeting. A 75% majority vote, in favour of an IVA is
needed for an agreement.
With an IVA you can avoid any legal actions, freeze all interest
charges, remove CCJ’s and design a programme of manageable
monthly payments based around what you can afford.
You also avoid the penalties associated with bankruptcy as mention
earlier:
· Acting as a director of a company, starting, managing or
promoting a company without the consent of the court’s
· Continuing to run a business in a different name from that for
which the bankruptcy was made without informing all
associates doing business with you
· Obtaining credit of £250 or more without disclosing to the
creditor, your bankruptcy
However, IVAs are usually only suitable for those with unsecured
debts of at least £20,000.
Although an IVA protects you from the stigma of bankruptcy, where
all details are advertised publicly. If your application for IVA fails,
you could still be made bankrupt. You will also be charged for the
cost of the IVA; however this would be added to the debts.
Why is My Credit Score so Low?
Too many credit applications
Every time you apply for credit, your credit file is checked and a
credit footprint is recorded. Applying for credit from a range of
applicants, over a very short space of time can have a negative
effect on your credit score. Having credit refused by a large amount
of creditors over a short space of time, can prove to creditors that
the individual is desperately trying to obtain credit to no avail. This
in turn can arouse suspicion regarding the applicant’s credit
situation.
Try to keep the number of applications for credit down to one a
month. If you have made an unusual amount of credit applications,
which have been refused. Do not apply for more credit for around
six months, this allows time for your credit file to look a little more
respectable.
Living at current address for less than 3 years
This applies to tenant’s more than home owners. If you move
around a lot and apply for credit from different locations, your credit
file will reflect this. Creditors do like you to have a fixed location for
correspondence. Home owners are different, creditors like the
applicant to live at the current address for a minimum of 1 year.
This proves to the creditor that the home owner is committed to
owning the home and has no financial difficulty repaying debts.
Lack of employment
Lenders usually prefer an applicant who has had the same job for a
number of years. Changing jobs for more money will usually have
no effect on credit status or the application process; however it is
better to have been in a new job for a few months before applying
for credit.
As a period of continuous employment is what the lender preferably
wants to see. It is better for the applicant not to have been through
a period of unemployment between jobs and have 3 or more jobs in
the last 3 years. This can adversely affect your credit score. Lenders
do like to see three months worth of bank statements and payslips
when reviewing credit situations.
No bank account or new bank account
Not having a bank account is probably the worst case scenario
possible. It is highly unlikely you will ever receive credit without a
bank account. A new bank account can also cause problems, as
most creditors require bank statements for credit evaluation. If you
have been with your current bank for a long period of time, this
proves to the creditors there is a long standing history with
commitment to your bank. A long term bank account rates very
highly on the credit rating.
History of bad credit
Your credit history accounts for around one third of your credit
score. Not only do County Court Judgements (CCJ’s) or defaults on
your credit report have a negative impact. Also missed and late
payments have an adverse effect. Some of these credit entries stay
on your credit file for 6 years. If you have been making payments
on time for at least the last 12 months the damage to your credit
file is greatly reduced and entries will begin to have less and less
influence on your score as long as timely payments are made.
Not registered on the electoral roll
Registering yourself on the electoral role will help you gain credit.
Most applicants are checked against the electoral role for proof of
address. If you are not registered, try ringing your local council for
details regarding registration.
