Dealing with unsecured debts you can no longer afford to repay every month can be a stressful situation for many people. However, there’s no reason you should have to deal with your debt problems alone.

If you can afford to make lower monthly repayments, arranging a debt management plan with a professional debt management company could really help you get on top of the problem – and take a weight off your shoulders in the process.

Let’s look at how a debt management company could help you.

What is a debt management plan?

A debt management plan is an informal debt repayment plan your unsecured lenders may agree to if they consider it the best way of getting back the money you owe them.

It’s designed to let people who can’t afford to make their monthly unsecured debt repayments regain control of their debts with reduced payments. This can cost more in the long run, due to interest, but it can still be the best way of getting the money repaid when you simply can’t afford the original payments.

If a debt management plan is a suitable approach, you may choose to arrange one on your own. However, if you’re in a stressful situation with your debts, you may feel arranging a debt management plan with a professional organisation suits you better.

How could a debt management company help?

Some people feel embarrassed or reluctant about dealing with their lenders directly. Working with a professional debt management company could take the pressure off you: the debt management company will negotiate with your unsecured lenders and will ask them to accept new monthly repayments you can afford.

To get started, a debt adviser will discuss your financial commitments with you and work out exactly how much you can realistically afford to repay your lenders after all your essential monthly costs (food, rent/mortgage, transport, and so on) have been covered.

If your lenders agree that a debt management plan is the best way for you to repay them, the debt management company may also be able to get them to agree to freeze/reduce interest on your unsecured debts.

Once your debt management plan is agreed, all you’ll need to do is make a single monthly repayment every month to the company you’re working with, and they’ll give your lenders the agreed amounts. You shouldn’t have to deal with lenders’ letters or phone calls anymore, and you should remain on the plan until you’ve repaid your debts in full – or until you can afford to make your original repayments once again.

Although making smaller payments will damage your credit rating for six years – which is likely to affect the cost/availability of further credit – it’s likely your credit score will have already been affected due to your problem debts.

It is very common that debtors run away from the creditors out of fear and shame. But in reality and in most of the cases, the creditors keep on calling people because they are uncertain about getting their money back. If you can gain their confidence that you are trying your best to pay them, half of your pains will be gone.

This does not mean that you must pay the full amount. You can wipe off your credit card debts by negotiating with creditors at much less then the initial amount.

As you are reading this article, I assume that you have gathered the positive energy to get out of your credit card debts. In this article we will provide you some simple tips for negotiating your credit card debts with your creditors.

The first step is to open the conversation corridor. Most of the debtors run away from them. However, the best solution is rather than the creditors calling, you should be proactive and call them to talk about your financial condition.

If you don’t keep in touch with your creditors, they will assume that you do not want to pay back. As a result creditors may start thinking about taking action against you.

Once you start negotiating with your creditors, the first step is to come to terms with them regarding your repayment. Keep contacting your creditors several times before they accept your request.

Some legitimate reasons to contact the creditors are:

1. You owe them debts
2. You have some money to offer
3. You have certain belongings that could be sold to clear your debts
4. You want to know how you can get out of debts.
5. etc.

Which creditor should get the biggest share of money?

The most convenient way to divide your money among all your creditors is making offers on a pro rata basis. Here you would be offering the most to the creditor you owe the most. You can do this by:

Total Money Available For Credit Debts X Money Owed For Individual Credit Debt ÷ Total Amount Owed For Credit Debts

This formula will give you a weekly or monthly repayment rate. Most creditors prefer this method because they feel you are treating them fairly.

However it is often seen that the creditors do not suspend interest rates while you are paying back. Thus interest charges on one debt becomes more than others. This can put you into a crisis again.

How to stop further interests on your debts?

Start writing to your creditors as soon as possible and explain your financial situation. Ask them to stop charging further interests on your debts or you will be unable to pay them off. Attach your financial statement with this letter. This statement should also have the list of creditors and the amount you owe to each of them.

When negotiating with your creditors, be clear with your reasons and request. You can always ask your creditors to freeze the interest. Otherwise, your debts will keep on increasing at an alarming rate.

Sort your debts before you contact your creditors:

You must present a budget sheet when you are contacting a creditor. This would give them a fair idea about your financial situation. As a debtor you need to persuade your creditors into accepting your offer. So it is essential that you keep up a good code of conduct. Whenever you are negotiating with your creditors, make sure that you maintain paper work. This includes invoices letters, offers made, credit card statements etc. Note down the date, time as well as the names of the creditors you have contacted.

When you are negotiating credit card debts with creditors, make sure that you can make payments. If your creditors accept your offer, start paying immediately. This will give your creditors a proof that you genuinely want to write off your debts.

If you cannot pay anything to your creditors, give them an explanation. Request them to allow you to make payments after three or six months. Or you could give them a token offer of £1.00 a month and say that you would contact them as soon as your situation gets better.

Creditors can take legal action against you. However, if a credit agreement is regulated under the Consumer Credit Act, a creditor must issue a default notice prior to legal action.

You can also negotiate with the credit card companies 0% balance transfer of money on your credit cards. Switch over your debts to a lender who will offer you an introductory interest-free balance transfer card. But you should look out for one that does not charge a fee. There are many credit cards that charge 3% of the amount transferred.

At the same times stay alert – sometimes the 0% transfer is a trap. At times credit card companies will pull back your recent debts while allocating your monthly repayments. This means that those debts will be paid last. So your purchase debts will keep on increasing with a high interest rate till your balance transfer is paid off.

During your interest period, you can switch over your remaining debt to a new balance card and keep on repeating it till your debts are cleared. Try and apply for a new 0% card at least 6 weeks before the expiry of your old credit card’s introductory period.

You must remain transparent while negotiating credit card debts with creditors. If you cannot stick to your repayment agreements, contact your creditor immediately. To compensate, you can even offer a portion of your funds that you had promised to offer or go for a renegotiation of the proposal. Contact your creditor before they start calling you. In case you receive court papers from your creditors, visit Citizens Advice bureau.

You can even negotiate the claims with your creditors. For your credit card debts, the Citizens Advice Bureau can hold debt collection for up to 60 days.

If at any point of time you feel that you are being harassed by the creditors, contact your Citizens Advice Bureau for help. The Office of Fair Trading (OFT) has laid down certain guidelines for the behaviour of the creditors that they regard as ‘unfair business practice’. Read this article for more information on How to fight against Debt Collectors.

Address of Citizens Advice Bureau (Regional Office):

46 Donegall Pass

BELFAST BT7 1BS

Tel: 9023 1120

E-mail: info@citizensadvice.co.uk

Visit www.citizensadvice.co.uk for more advice and help.

What is a Time Order?

A time order is a process by which you can ask the court to give you more time to pay back your loan if you have trouble to make the payments. Following parameters may change with a time order:

• Loan repayment period
• Monthly repayment amount
• Interest rate

If you have a secured loan against your home and you are defaulting with the payments, your lender may threaten to repossess it. Here, a Time Order can be an effective solution.

Apply for a time order – things to check?

You can apply for a time order only if your credit agreement is governed by the Consumer Credit Act 1974.  This depends on when you took out your agreement and how much you borrowed at the time.

It covers a loan of:

• £15,000, if you had your credit agreement before 1 May 1998;
• £25,000, if you had your credit agreement between 1 May 1998 and 5 April 2008;
• Any amount, if you had your credit agreement on and after 6^th April 2008 (unless it was a business loan).

However, if you have taken building society mortgages and bank loans to buy your home then it will not be applicable in a time order. Your loan agreement must state that it is covered by the Consumer Credit Act. (Check if your agreement mentions “CONSUMER CREDIT AGREEMENT REGULATED BY THE CONSUMER CREDIT ACT 1974” or not)

When to apply for a time order?

1. When an ‘arrears notice’ has been issued by your lender.

Starting from October 2008, it is a mandate for the lender to send you an arrears notice within 14 days if you have missed two payments as per your agreement. It should tell you how much you owe as per the agreement, the arrears and the added interest charges. You can apply for a time order after you have received an arrears notice according to the new rules. You must write to your lender and give them 14 days notice that you are going to apply for a time order. You must include in the letter details of the offer of payment you are going to make in your application. Do not forget to keep a copy of your letter as you will need to show this to the court when you apply for a time order.

2. When a ‘default notice’ or ‘calling in notice’ or ‘termination notice’ has been issued by your lender.

The lender can issue a default or termination notice if you falter to make payment on time. When you get this notice, you can make an application to the county court for a time order. In this situation, you do not need to write to your lender to give notice that you are going to apply at this stage.

3. When creditor takes court action.

You can still apply for a time order if the creditor starts taking court actions against you.

The procedure and forms you need to use depends upon whether you have a secured loan, a hire purchase/conditional sale agreement or unsecured loan. Normally they charge you for your application. If you are on a low income or certain benefits you may not have to pay the fee.

Loans covered by Time Order?

1. Unsecured credit

If you have an ordinary credit agreement which is not a secured loan/second mortgage then you normally do not need a time order. If your creditor takes court action, then you should apply for a time order so that you can pay back under considerable terms.

The court makes the order for you to pay in affordable installments. Normally, interest is frozen by the Court under the Consumer Credit Act.

If your creditor issues a default notice and refuses either to accept your payment, or to freeze the interest rate then you can apply for a time order. If your creditor shoots up interest on your debt and refuses to take court action then applying for a time order is the only way to freeze the interest. If the court makes a time order and you keep up to date with payments, a creditor cannot apply to a county court.

It will not be shown as a judgment on the county court register or on credit reference agency files. This is applicable even if the creditor had reported the default on your credit file.

How to apply before court action

You have to fill up a claim form called N1 with supporting information known as “Particulars of Claim”. You also need to produce a personal budget sheet and details of your circumstances.

Application fee for Time Order is £150. If you are on a low income or on certain benefits, you may not have to pay the fee.

The creditor can object to your time order application in the court. There will be subsequent hearing where the district judge decides whether to make a time order in your case or not.

How to apply after court action

You need to fill up N244 if your creditor takes you to court. You need to pay £65 as fee unless you have some benefits. You also need a personal budget sheet and details of your circumstances. There will be subsequent hearing where the district judge decides whether to make a time order in your case or not.

In a situation where a creditor takes action against you in a county court elsewhere you can apply for the case to be transferred to your local county court.

2. Secured Loans

If your lender threatens to take possession of your home, time order can be the most effective way out.

How to apply for time order before court action

You have to fill up a claim form N440 and apply to a country court. You also need to fill in details of your income, expenditure and personal circumstances on a “schedule”. You will have to pay a fee of £150 with your application unless you have a benefit. A subsequent hearing will decide whether your application for a time order will be accepted or not. If the time order is refused the lender can initiate proceedings to repossess your home.

How to apply for time order after court action

If your lender makes a possession claim against you in your local county court you can apply for a time order. You will be sent a form (N5) by the court and need to fill in the defense form called N11M. Tick BOX 6 to ask the court to consider a time order and send this to the court with details of your defense, details of income, expenditure and circumstances. You can request for payments to be reduced or for the loan reschedule if necessary.

There will be a subsequent hearing where the creditor may object to your time order. The district judge may decide to make a time order, suspend possession and allow you to stay in your home as long as you pay back the loan. They can also refuse your application and give a repossession order. If you already have a possession order you can still make an application for a time order by using the general application form – N244.

Justified reasons to apply for a time order?

It is very important that your reason for the application is ‘fair’. The court looks into the matter from the perspective of both parties, (the creditor and you).

• How justified was your reason for taking a loan?
• Could you make payments on time in the beginning?
• Is your agreement very expensive or not appropriate to your requirement?
• Did you take any other loan subsequently? State reasons.
• Why are you not able to pay on time? (changed circumstances)
• Did you make a conscious effort to sort out the issue and ask the creditor for a payment arrangement? Mention whether the creditor has refused to negotiate.
• Is your situation temporary and likely to improve in the future? The court may want to make a time order for a time-limited period.

Starting a claim in the county court can sometimes be quite complex and has associated issues. Hence it is necessary that you take proper legal advice before you proceed.

Further Reading:

How to Deal With Debt Collectors – There had been a massive growth in calls from debt collection agencies after the recession. It is nothing new; threatening and abusive calls are used by many debt collection agencies to recover money.

Searching For a Bankruptcy Alternative? – If you are struggling with debts and thinking about bankruptcy then it is a terribly difficult place to be, but what most folks do not understand is that there’s a whole marketplace that’s dedicated to getting individuals out of their debts and allowing them to remake their lives.

No, it will not. Taking up a debt consolidation loan will not harm your credit rating in anyway. You will be paying off your unsecured loan and hence it will not have any negative impact on your credit score.

2. Can debt consolidation help me save money?

Yes debt consolidation can help you save some money. You will be paying a lower interest rate.

3. What is the difference between debt consolidation and debt management?

Debt consolidation is a process where the borrower takes up a secured loan to pay off all their existing unsecured loans. Here you only need to make a single monthly repayment to settle your debts. However, debt management does not involve another loan. It is an agreement between the debtor and creditor to settle the debt within a fixed period of time and the amount is repaid monthly.

4. Will debt consolidation be the right option for me?

Debt consolidation loan will only be suitable for you if: (1) you have many creditors, (2) you pay high interest rate, (3) you are unable to pay off on time. Thus, it depends entirely upon your financial status. Please consult a debt advisor to take the right decision. Normally, if your loan amount is less than £15000 you can apply for a debt consolidation loan.

5. I have bad credit problem – will I be eligible for a debt consolidation loan?

If you have a bad credit, the creditors will naturally find it risky to grant you a loan. If you have already missed many payments or have a CCJ then you need to consult an experienced debt advisor. He can help you to get a debt consolidation loan depending on your situation.

6. How much can I obtain as debt consolidation loan?

This completely depends on your present financial circumstances like your income, your total debt and the amount you can afford to pay.

7. What are the general terms of repayment?

Generally, the debt consolidation loan is paid on a monthly basis. But you can have a customized repayment schedule if your creditor approves. A debt consolidation loan is given for a minimum of three years to a maximum of twenty five years.

8. Will the creditors stop harassing me when I take up a debt consolidation loan?

Yes creditors will not be able to harass you when you take up a debt consolidation loan. You can direct any creditor’s call to the debt consolidation loan company who will deal with the matter.

9. What will happen if I fall ill during the tenure of the loan?

If you fall sick your debt consolidation company will take care of it. Generally they provide covers for sickness, accident or unemployment.

However, for any debt consolidation related issues please consult a qualified debt advisor to get a personalized solution

Did we miss any question? Please write your question / questions in the comment box and we will add it in the list.

More resources on debt consolidation:

http://www.debtfreedirect.co.uk/debt-consolidation/

Did you know, as of April 2009, the average household debt in UK is around £59,765 (Including Mortgage)!

And if you think that you are the only person in UK facing severe debt problems, think again. On an average, 1 person files for bankruptcy or enters IVA in every 3.3 minutes in UK.

If this is not alarming enough, think about the situation where on an average a family pays £3,000 (this is the average payable interest amount/family/year in UK) every year just as an interest. How do you think a less well-off family can get out of this debt cycle!

Now, you may find thousands of reasons to blame Robert Stheeman for this situation. But that is not going to solve your immediate problem – debt.

1 person files for bankruptcy or enters IVA in every 3.3 minutes in UK.

How to fight against debt?

You can never get out of debt unless you take the initiative to get out of the debt trap. For example you may consider frugal living, generating extra income, negotiating with the existing creditors for a better repayment plan, paying them off as soon as possible etc. The success of the plan depends on your determination to stick with it.

In next few posts we will cover some basic ideas on how to fight against debt.

Photo Credit: http://www.flickr.com/photos/janusserendipity/

In the last post I wrote about 11 consequences of signing a trust deed. In this post we will talk about how trust deeds actually work. If you have any problem, please write a comment – we will try to answer.

Trust deed is actually a voluntary agreement between the debtor and creditors under the supervision of a trustee (must be a qualified insolvency practitioner). Here the trustee plays a major role as the right of debtor’s legal possessions is transferred to the trustee and he or she executes the whole process. If necessary the trustee may sell debtor’s possessions to pay the creditors.

Depending on the financial status of the debtor, the trustee drafts a trust deed. While drafting the Trust Deed the trustee inquires and validates debtor’s total earnings. He will calculate debtor’s monthly expenses and the basic cost of living. This will help him to finalize an amount that the debtor can afford to repay debt every month. The repayment amount is calculated on how much you can pay for every £1. For example, if the trustee finds that the debtor can afford to repay 30 pence for £1 he will draft the proposal accordingly and present it to the creditors.

After that the trustee publishes the proposal on the Edinburgh Gazette to inform all the creditors. The creditors get five weeks of time to decide and object on it. As long as a creditor or creditors who have lent more than 33% of the total amount do not object, the proposal is considered as a legal binding to all the creditors. If no creditor objects within 5 weeks, the deed is treated as approved and protected. Normally, creditors accept the deed if you offer a minimum of 10 pence for every £1.

A protected trust deed,

1. prevents creditors to take any other action to recover money. This rule holds true as long as the debtor abides by the rules set by the trust deed.
2. prevents the debtors from going in for other repayment methods like bankruptcy or another debt management plan.

After the Trust Deed is accepted by the creditors the trustee begins further proceedings and he will deal with the creditors from then on.

The rules of a Trust Deed are fixed and the trustee strictly executes them so that the debt is paid off properly. The trust deed normally runs for 3 years and after that all the debts are written off.

Find more about trust deeds in Scotland on debt help expert.

However, if you think that Trust Deed is the only option, there are certain things that you must know:

1. After you have signed the Trust Deed, rights of your assets will be transferred to the trustee. Your assets include your home and other immovable properties. The trustee can sell your assets to pay the creditors if you fail to pay your debt as per the terms of the Trust Deed.
2. If the Trust Deed is not a protected one, the creditors may take further legal actions against you to recover their money.
3. If you take a new loan after signing a trust deed, it will not be covered by the existing trust deed. The new creditor is free to take legal actions against you to recover money.
4. A Protected Trust Deed will affect your credit rating like bankruptcy or sequestration.
5. Details of the trust deed are published in “Edinburgh Gazette” and once the creditors agree to the trust deed, it is recorded in Register of Insolvencies (public record).
6. Signing a Trust Deed would not entail you to hold the position of director in a limited company. You may also be barred from holding positions in some of the public offices during the tenure.
7. The trustee will charge for everything they do to settle your debts. They will pay the creditors only after they have collected their fees.
8. Prior to signing, any income or arrestment will be validated by the Trust Deed.
9. You can continue working and hold a bank account (if the bank agrees).
10. Trust Deeds do not cover secured loan, student loan, court fines, penalties etc.
11. If you do not contribute according the trust deed, the trustee may file for bankruptcy.

The consequences of Trust Deed depend on your circumstances and the creditor’s acceptability. Do not forget to get a good trustee as a lot of things will depend on him or her.