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Organisations that provide debt advice offer a number of services designed to help people manage their debt and begin the process of paying it off without incurring more obligations they cannot meet. Obtaining debt advice may include counselling on Debt Management Plans, Individual Voluntary Arrangements, and Debt Relief Orders, budgeting assistance and re-evaluating oneís living standards and adjusting spending habits to accommodate a cash only lifestyle, as well as an explanation of legal rights and laws concerning actions taken by creditors.
A Debt Management Plan (DMP) can be used as an effective way to repay non-priority creditors. Credit counsellors negotiate reduced payments with creditors and make payments to them on behalf of the client. The benefits of a DMP include having assistance in dealing with creditors and reduced monthly payments.
An Individual Voluntary Arrangement (IVA) enables individuals to make a proposal for repayment through an Insolvency Practitioner. Arrangements are made to suit an individualís circumstances, and may include an agreed upon monthly payment, a lump sum payment or both. IVAs are an option to avoid bankruptcy or when a Debt Management Plan would result in an unreasonably long repayment plan. An IVA must be agreed upon by 75% of an individualís creditors; creditors who voted against the IVA will be bound to accept the terms even if they did not vote in favour of it. IVAs are not reported in legal notices, and may make it more possible to keep assets such as the family home than with a bankruptcy proceeding.
A Debt Relief Order (DRO) is an option that has been designed to help people with few assets. To qualify for a DRO, and individual must not be in debt more than £15,000, have no more than £50 per month of surplus income, no more than £300 assets except a car valued up to £1000, and may not be a homeowner. The DRO places a moratorium on debts during which time no payments are made to creditors. At the end of the period, debts listed in the DRO are discharged entirely.
It is vital to seek debt advice as soon as debt begins to spiral out of control. Many agencies have advisors that can immediately assess a situation, and begin the process of obtaining emergency assistance, provide debt management literature or schedule a credit counselling appointment.