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Managing debt without affecting your long-term financial future
Our social media feeds are filled with offers of help with debt, but it’s not always obvious what the impact will be on you and your long-term finances. I’m here to give you a quick guide and to let you know what alternatives there are.
Amanda Ryan, Money Advice Manager
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Understandably, having a growing debt is frightening and it might be hard to see how you can resolve it. There are a few routes you might know about, however they all have a long term impact on your credit rating, so may not be the best solution for you.
A credit rating is an estimate of whether or not you’re likely to be able to pay back money you borrow, based on your history. A company will run a credit check on you to decide whether you can enter into a financial contract with them – for example, a mobile phone contract, or car finance. If you have a poor credit rating, it’s very hard to borrow and can affect how you’re able to live for many years.
With that in mind, before you decide to pursue any of the options below, I’d urge you to contact the bpha Money Advice Team.
We will give free advice which could include negotiating with creditors on your behalf to help reduce your debt, or create a free manageable payment plan in which all payments you make reduce your debt. We also act independently so you don’t need to worry about what you tell us affecting your tenancy. However, because we are part of bpha, it does mean we can access information relating to your account quickly – that can be an advantage when we’re putting support in place for you; less waiting, stress and uncertainty.
Routes to tackling debt
Each of the options below has certain criteria you must meet to be able to go ahead. You can find more information on Citizens Advice or the Government’s websites.
Bankruptcy
Bankruptcy is a legal status that usually lasts for a year. When you're bankrupt, your non-essential assets (what you own) and excess income are used to pay off the people you owe money to (creditors). You can file for bankruptcy online. When the process is complete, a bankruptcy order will be created for you to follow – it includes restrictions such as not being able to borrow more than £500 without telling the lender that you’re bankrupt. Bankruptcy will remain on your credit record for six years.
Debt Relief Order (DRO)
This is a government scheme that helps manage some types of debt, reducing or wiping them. There are quite a few criteria you need to meet to be eligible – a debt adviser would take you through an assessment to check. A DRO stays on your credit record for six years.
Individual Voluntary Arrangements (IVA)
This is a legally binding agreement to pay back your creditors over time, that they have to agree with and stick to. The fees for this are high and only worth considering if you have debts of over £10,000 and have an asset you need to protect.
These are heavily promoted online and there’s a reason: many are offered by debt management companies that add additional fees and, in some cases, you’re paying back the company for years before you even start paying off your actual debt. And you’re not protected from bankruptcy if you struggle to make your payments. bpha will not allow current rent arrears to go into an IVA.
Non-fee charging debt management plans
These are plans that enable you to repay your debt over a period with the agreement of your creditors. The money you pay goes directly towards the debt.
If you’ve already pursued one of the debt relief options I’ve mentioned and are now concerned, don’t panic! Get in touch and we’ll look at your situation and see how we can help.