Debt: Credit Counseling

Most people opt for a solution to their debt troubles without even knowing if it is the best answer to their problems. When seeking help for getting out of your financial debts, one option you may have heard mentioned is credit counseling. But is it right for you? There are several benefits from credit counseling, but it doesn’t suit everyone’s financial situation. Here is some credit counseling information, and how to find out if it is right for you.

First, determine if credit counseling is right for you by determining your financial situation by figuring out if you have what is called “unsecured debts”, like signature loans or credit cards. If you do, then you can benefit greatly from credit counseling. If you have high interest rates, or are behind on your unsecured debts, then you can find the help you need through this solution. They can also provide aid if you have maxed out your credit cards, or just generally feel overwhelmed by your debts.

Some of the benefits of financial help and credit counseling include: an end to all late fees and ‘over the limit’ fees, reduction or complete elimination of interest, and one low monthly payment.

Bankruptcy or an IVA?

In the last 3 months of 2008 alone,  30,000 people in the United Kingdom either went bankrupt or entered into an individual voluntary arrangement (IVA).

Bankruptcies make up most of this figure, but the number of people entering into IVA’s is growing rapidly.  In 2008 the number of bankruptcies increased by 30% whereas the number of IVA’s doubled. In 2009 for the first time, more people will enter into IVA’s than go bankrupt.

What is Bankruptcy?

When you are declared bankrupt, this means you are unable to pay your debts. You must apply through the courts, and then your assets will be divided up between your creditors.

What does it cost?

Typically you will pay £150 court costs, plus an additional £325 to the Insolvency Service.  You may be exempt from the court costs if you are receiving benefits.  Any costs from disposing of your assets are deducted from the proceeds of the sale.

What is an IVA?

This is an agreement between you and your creditors.  It will reduce the total debt, and interest is frozen. While it is in place, no creditor can take legal action against you.

What does it cost?

The fees for an IVA can vary. They will usually involve a setup fee and an annual supervisory fee.  The fees will be deducted from the total amount that the debtor can afford to pay.