Introduction

In the USA there has been a significant rise in the number of people seeking debt consolidation in the current financial situation. Some economic forecasts in the USA predicted that the shockwaves would still, one year later, be reverberating around the financial world from the problems caused by the American sub-prime loan markets; so it’s not just ordinary US citizens that are feeling the impact and having to look at debt consolidation. For example, what was once seen as anathema to many people in the UK, debt consolidation in the current financial climate is almost becoming a fact more and more residents of the UK.

Why do people in the UK seek debt consolidation?

The financial crises that is currently present in the whole world has its major impacts in the USA but the UK is as well very bad affected as it is in such a deep relation to the USA . The main root of the problem was in the UK housing market which, basically, overheated. By injudicious lending from the UK mortgage companies people were able to lend more than their property was really worth, which then contributed to house prices rising beyond their true value. The net result of this situation is that people are no longer able to afford their mortgage and/or find themselves living in homes with negative equity. All was well, until the US finance markets collapsed and all the international finance companies suddenly wanted their money back and, almost overnight, were no longer prepared to tolerate people getting into debt. The same was also true of personal loans and credit cards, it had been all too easy to get a loan and seemingly have ‘for ever’ to pay it back. Then the credit crunch came and everyone wanted their loans repaid and became unwilling to lend anymore. Sadly, this current financial climate has really hit people who used to take out loan upon loan to pay for things; and now suddenly need to repay them all. In the current financial climate debt consolidation is for many people the only way for repaying their debts.

Individual Voluntary Arrangements and debt consolidation

As mentioned above some people used their credit cards or took out extra loans to either pay off their debts or even worse to live in a lifestyle that they can’t actually afford from their basic monthly wages. It was a shock to many such UK residents in this financial situation to learn that credit card companies, banks and other finance companies can apply to UK courts demanding that a persons housing property be sold to pay off another debt. For people that owe many debts to several different credit companies, one solution can be to seek debt consolidation. Debt consolidation in the UK works exactly the same as in the USA. In essence a finance company will collect together all the various loans and debts and arranges to pay them off. The person is then left with one or more loans that they have to repay to the debt consolidation finance company. After consulting with a debt counselling service some people prefer to opt for an Individual Voluntary Arrangement, or IVA. Like debt consolidation, Individual Voluntary Arrangements can help you to avoid having to declare yourself bankrupt. Whereas in debt consolidation all your debts are collected together into one debt, using an IVA all the debts remain with all the separate companies. Therefore, the difference with an Individual Voluntary Arrangement is that through an agency, usually an insolvency agency, you undertake to repay a percentage of your debts to your creditors. The normal period for an IVA is five years, at the end of which many creditors will ‘write-off’ any outstanding debt, providing you have paid off the agreed minimum written into the IVA. Any reputable and established finance company offering debt counseling services will be able to recommend whether a debt consolidation or an Individual Voluntary Arrangement will be most appropriate to your circumstances.

bankruptcy to clear debts

Declaring yourself bankrupt in order to free yourself from your debts might seem an extreme step to take - unfortunately it can't be avoided in certain situations. Bankruptcy is definitely not something to rush into, you should seek financial advice from professionals from several sources and companies before deciding to declare bankruptcy. You need to be 100% sure that neither debt consolidation nor an IVA can save you from bankruptcy as, once you are declared bankrupt, your creditors can claim to have any of your assets sold to clear the debts owed to them. This will include your home if you own one, any property or possessions you have, any shares you may have etc. Bankruptcy trustees can also investigate any financial dealings you’ve had in the previous five years, to check that you haven’t been deliberately trying to avoid things falling into the hands of the bankruptcy trustees. So, bankruptcy should really only be considered if you literally have ‘nothing to lose’ by declaring yourself bankrupt. You should also be aware that once you are declared a bankrupt you may well have difficulties for many years to come raising credit, your employment opportunities and running businesses. It can not be stressed enough - discuss carefully any thoughts of declaring bankruptcy ahead of considering debt consolidation or Individual Voluntary Arrangements.