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In our troubled economic times, many people have found themselves unable to pay their bills. Whether on a car payment or mortgage, falling behind could mean repossession or foreclosure. Thankfully there are numerous resources available for those with overwhelming debt.
Debt consolidation is a common, sensible way to manage debt. One of the most useful tools available is known as debt management. Organizations that offer debt management services work with the debtor to calculate what they can realistically afford to pay each month. The organization then contacts creditors and asks whether they will work with the debtor and allow lower payments. The debtor then makes one payment to the organization which in turn pays the creditors. Many organizations charge a fee for their role in consolidating someoneís debt. Others offer their services free of charge; one such is the Debt Advice Bureau.
Another debt consolidation practice is the acquisition of a personal loan. Personal loans are available as either a secured or an unsecured loan. A secured loan is obtainable for those debtors who have something to offer as security against the loan. Homeowners are most likely to be approved for a secured loan. An unsecured loan requires no collateral from the borrower, but interest rates are often much higher than for a secured loan. Once the loan is granted, the debtor can pay off outstanding debt, being then left with a single payment.
An additional route available for those needing debt help is an IVA or Individual Voluntary Arrangement. A debtor wishing to apply for an IVA works with an Insolvency Practitioner (IP) who prepares the application. The applicant and the IP calculate what the debtor can afford to pay. The IP presents the application to the creditors who vote on whether or not they will accept the terms. The debtor has the opportunity to see and review the application before it is sent out. If the creditors agree to the arrangement, the debtor will begin to make payments. The payments are typically made for the duration of five years. The less common alternative is to make one large or lump sum payment. Once the five years have passed or the lump sum paid, any remaining debt is written off and the debtor is debt free. One disadvantage to an IVA is that it affects a personís credit rating.