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Alternatives to Bankruptcy: Debt Solutions Explained

Alternatives to Bankruptcy: Debt Solutions Explained

Debt is a big problem all over the world. In the UK, the average debt per adult currently standing at a massive £29,210. In the US, the average household with debt carries $15,762 in credit card debt and $130,922 in total debt. Rising debt, plus a drop in income and savings, means 2016 is a rather uncertain one when it comes to our finances.

If you’re in serious debt then a debt solution could be the way out. For some people, bankruptcy isn’t the preferred option because this route can cause long-term problems, such as issues accessing credit, losing property and getting work.

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Of course, seeking out a debt solution requires a lot of consideration, so always take debt advice before you do anything. This guide outlines some of the common alternatives to bankruptcy and aims to help you work out which is the best option for you.

1. Debt Management Plan

A debt management plan is an informal repayment agreement between you and your creditors. You will agree a monthly sum and pay it back. Typically, a debt management company will manage such a plan for you. Find out more about debt management plans on this government website.

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2. Individual Voluntary Arrangement

An individual voluntary arrangement, or IVA, is a formal agreement between you and your creditors. This means it is approved by the court. With an IVA, you would agree to pay off your debts over a set period of time. An IVA needs to be set up by a lawyer or an accountant.

3. Debt Relief Order

Debt relief orders are designed for people on low income with relatively low levels of debt (typically, less than £20,000). Under a debt relief order, your debt repayments and interest are frozen for 12 months. After this time, if your financial situation hasn’t changed, your debts are written off.

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4. Trust Deed

Available to residents of Scotland, a trust deed is similar to an Individual Voluntary Arrangement (explained below). It’s effectively a formal repayment agreement between you and your creditors. A Scottish trust deed would see you transfer some or all of your assets (cash, property) to a trustee who would manage them for your creditors. You would pay a single monthly payment to the trustee. Find out more about trust deeds from Trust Deed Scotland.

5. Write-off

If you are in real dire straits and cannot afford to make any payments towards your debts whatsoever, one option is to try and get them written off. To do this, you would have to formally ask your creditors if they would be prepared to do it. Obviously, it is highly unlikely that they would. You can find a template letter for requesting a write-off for your debts.

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6. Last Resort – Bankruptcy

Bankruptcy should be regarded as a final option. Bankruptcy sees an official receiver take control of your assets. Note that these assets could be sold to pay your creditors. You will also have to follow certain bankruptcy restrictions and details of your bankruptcy will be made publicly available. Remember that bankruptcy could affect your employment and access to credit.

Keeping On Top of Things Day-to-Day

With the possibility of the Bank of England raising interest rates later this year, families and individuals need to prepare themselves to properly manage their finances. We’ve added some simple ways you can keep on top of your money.

  • Assess whether you’re paying for anything you’re simply not using (Netflix, etc).
  • Start signing up for loyalty and reward programs to get vouchers and deals.
  • Sell anything you no longer use.
  • When going to the supermarket, write a shopping list and stick to it.
  • Avoid fast food – it’s expensive.
  • Head to charity shops for bargains.

Falling into debt is not a situation anyone wants to find themselves in. But, know that it need not be the end of the world. With a number of debt solutions available, there’s every possibility you’ll find something that changes your financial situation for the better.

Featured photo credit: Wipe your debt via thealertinvestor.com

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Last Updated on January 21, 2020

How to Develop a Millionaire Mindset in 6 Simple Steps

How to Develop a Millionaire Mindset in 6 Simple Steps

We all like to dream about being financially wealthy. For most people though, it remains a dream and nothing more. Why is that?

It’s because most people don’t set their mind to achieving that goal. They might not be happy in their current situation but they’re comfortable – and comfort is one of the biggest enemies of growth.

How do you go about developing that millionaire mindset? By following these simple steps:

1. Focus On What You Want – And Take It!

So many people are too timid to admit they want something and go for it. When there is something that you want to accomplish don’t think “I could never actually do that”, think “I could do that and I WILL do that”.

Millionaires play to win, not to avoid defeat.

This doesn’t mean to have to become a selfish jerk. What it means is becoming more assertive and honest with yourself. You don’t have to grab off other people. There is a big pot of unclaimed gold in the middle of the table — why shouldn’t you be the one to claim it? You deserve it!

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2. Become Goal-Orientated

It’s almost impossible to achieve anything if you don’t set firm goals. Only lottery winners become millionaires overnight. By setting yourself attainable goals, you will get there eventually. Don’t try to get rich quickly — get rich slowly.

Let’s take the idea of making your first million dollars and expand on what kind of goals you might set to get there. Let’s also say you’re starting at a break-even position – you’re making enough to get by with a few luxuries, but nothing more.

Your goal for the first year can be having $10,000 in the bank within a year. It won’t be easy but it is doable. Next, you need to figure out the steps you need to take to achieve that goal.

Always look at ways to make growth before cutbacks. With that in mind, you might want to see if you can negotiate a pay rise with your boss, or if there’s another job out there that will pay better. You might be comfortable in your old job but remember, comfort stunts growth.

You may also have other skills outside of your workplace that you can monetize to boost your bank balance. Maybe you can design websites for people, at a fee of course, or make alterations to clothes.

If this is still not enough to make the money you need to save $10,000 in a year, then it’s time to look at cutbacks. Do you have a bunch of old junk that someone else might love? Sell it! Do you really need to spend $10 on your lunch everyday when you could make your own for a fraction of the cost?

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If you are to become a millionaire, you need to start accumulating money.

Here’re some tips to help you: How to Become Goal Oriented and Achieve More in Life

3. Don’t Spend Your Money – Invest It

The reason you need to accumulate money is for step three. Millionaires tend to be frugal people, and that’s because they know the true value of money is in investing. Being your own boss goes hand-in-hand with becoming a millionaire. You’ll want to quit your regular job at some point.

Stop working for your money and make your money work for you.

Rather than buying yourself a new iPad, that $500 could be used to invest in the stock market. Find the right shares (more on that later), and that money could easily double within a year.

There’s not just the stock market — there’s also property, and your own education.

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4. Never Stop Learning

The best thing you can invest in is yourself.

Once most people leave the education system, they think their learning days are over. Well theirs might be, but yours shouldn’t be. Successful people continually learn and adapt.

Billionaire Warren Buffet estimates that he read at least 100 books on investing before he turned twenty. Most people never read another book after they’ve left school. Who would you rather be?

Learn everything you can about how economics works, how the stocks markets work, how they trend.

Learn new skills. If you have an interest in it, learn everything you can about it. You’d be surprised at how often, seemingly useless skills, can become extremely useful in the right situation.

Start developing the habit of learning continuously: How to Create a Habit of Continuous Learning for a Better You

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5. Think Big

While I advise to start off with small goals, you absolutely should have a big goal in mind. If you have a business idea, then that is your ultimate goal – to start that business and make a success of it. If you want to invest your way to millions of dollars and do little work other than research, then that is your big goal.

There is no shame in not achieving a big goal. If you run a business and aim to make $1 million profit in a year and “only” make $200,000, then you’re still significantly ahead of most people.

Aim for the stars, if you fail you’ll still be over the moon.

6. Enjoy the Attention

To be successful, you have to be willing to promote yourself and enjoy the attention to a certain extent. Now the attention doesn’t need to be on yourself, it could be on your brand, but attention definitely attracts money.

Never be embarrassed to get your name out there. That means finding a spotlight and being brave enough to step right up underneath it.

If you run a business, try contacting the local papers. You’d be surprised at how amenable they often are to running a story about you and your business, and it’s all free publicity.

Above all, remember: You control your own destiny. Push hard enough for anything and you’ll get it.

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Featured photo credit: Austin Distel via unsplash.com

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