Many people struggle to keep their finances in order. Even if you are able to maintain a steady income, it is easy to be overwhelmed by a build-up of debt.
However, there are programs that can allow you to file for debt help to alleviate your financial burdens.
Keep reading to learn more about how to write off debt and regain control of your personal finances.
What is it and what is a good way to write off debt?
When you write off your debts, a creditor agrees to minimize or eliminate your debt based on your financial circumstances. The procedure laid out to acquire debt help and debt consolidation is designed to alleviate an insurmountable financial burden, not to be used routinely to get free money.
When a debt is written off, a creditor removes the assets from the incoming balance sheet. This is because they no longer expect to recover the payment and you are no longer required to repay that balance.
You must qualify to be eligible for debt help. These qualifications are designed to ensure that individuals must still strive to be financially secure.
How to write off debt
There are different ways to pursue debt help that let people free themselves of debt. Depending on your circumstances, a creditor may agree to help you relieve your financial gridlock.
Not everyone can erase their debt. An individual’s personal circumstances have an impact on their eligibility for an insolvency debt solution.
Possible qualifications to write off debt
Debt relief and removal programs through creditors are only successful if you can provide evidence of your inability to repay the debt. Typically individuals in these circumstances are able to provide enough evidence that creditors may be more inclined to aide you in debt forgiveness.
When debts stack up, creditors know that you would need to have an increase of income to repay your debts. That is why creditors are more likely to work with you on debt help programs if you can provide evidence.
Although these circumstances increase the likelihood of your approval for debt relief, they do not ensure it. These life circumstances can show that you are acquiring minimal to no income each month.
If you are retired or nearly retired and collecting a pension, your creditor will be more inclined to work with you. This is primarily because you are past the age where an increase in earning potential is common.
For the working class, it is expected that their financial situation will commonly fluctuate to a point where is feasible to assume that the debt may eventually be repaid.
As long as you can provide reasonable evidence as to why your finances will be slowing, and based on the limited income of your pension, you can assure them of no change in the situation.
Creditors are able to tap into government unemployment records and predict your likelihood to become re-employed. Because unemployment benefits are designed to help you make ends meet, parties who have been unemployed for a long time are unlikely to have excess funds to divert to repaying debts.
Debt settlement allows the creditors to manage their finances and no longer count on collecting assets. This circumstance of debt consolidation ensures that individuals can focus on securing employment and getting back on their feet.
Individuals’ health can cause them to endure many unexpected expenses. If you can provide evidence of a long-term or terminal illness, your creditor may agree to free you of your debt. This condition is more likely to get you released from your debt if it inhibits your ability to work.
Possible Solutions to Writing Off Debt
There are a variety of programs you can subscribe to for debt help. Here are some of the common options for debt solutions.
Debt Relief Order (DRO)
A Debt Relief Order (DRO) is a debt solution that allows low-income individuals to be absolved of debt of less than £20,000. This solution is made accessible when it is clear to the creditor that the party in debt is very unlikely to pay back the money they owe.
The DRO is not designed to just erase a party’s debt entirely. It freezes the debt for a period of 12 months. This grants the indebted individual time to reorganize their finances and get on their feet.
If it is still clear that after the 12 month grace period that the party’s financial situation has not improved, the creditors will review the filing. Following the review, the creditors may opt to liberate the party of their debt.
Benefits of a Debt Relief Order
A DRO works best for individuals who can’t afford to opt into a payment plan. A DRO will only last you a year, so you can eventually return to a normal life without the lingering financial obligations of your debt.
The short-term structure of a DRO is designed to be an effective alternative for low-income debtors. This is a much cheaper alternative for many.
Risks of a Debt Relief Order
You can not file for a DRO if you have received one in the last six years. This stipulation is designed to ensure that people do not abuse this method of debt help.
You can only have a total of £2,000 in assets when you file for a DRO. This makes a DRO an impossible option for many people seeking loan forgiveness.
Debt Consolidation Loans
A debt consolidation loan is a personal loan that is sought out in order to pay off high-interest debt. By consolidating your debt you can use one loan to simplify your repayment plan.
Once you apply for this loan you can use the acquired funds to pay off your debt balances. Then in a single monthly payment, you can pay off the new loan.
Benefits of Debt Consolidation Loans
Debt Consolidation Loans are an effective way of consolidating your unsecured debts into a single monthly payment. This can help make the slew of credit card bills more manageable. This organizational method will help to give you the assurance that you won’t miss a payment or incur penalties and fees.
Risks of Debt Consolidation Loan
The primary difficulty in acquiring a debt consolidation loan is that it can be difficult to attain. If you have a bad credit score it can be difficult to get these loans approved.
Depending on your lender you may have to put your home or car as collateral, which can be a sizable risk. These risks should not inhibit you from simplifying your payments with a debt consolidation loan.
Individual Voluntary Arrangement (IVA)
The Individual Voluntary Arrangement (IVA) is another common debt repayment option in the UK, which allows you to write off up to 90% of your unaffordable debt. This program allows parties to repay the unsecured debt through monthly installments. Following a five-year period of monthly payments, your excess debt is written off.
This solution is designed to give parties a chance to slowly repay their debt but ultimately operates in a way that can alleviate the stress of looming debt. The downside to this debt help method is that it is negatively reflected on your credit score. IVAs will be listed on your credit report for six years.
Benefits of an IVA
The major benefits of seeking debt absolvement through an IVA are the ability to maintain certain assets and convert your debt into a payment plan, writing off the debt you can’t afford to repay. With an IVA you can keep your home as long as you maintain your regular mortgage payments.
Additionally, you won’t be taken aback by random fees popping up because all fees are included in your monthly payments. You can compile your payments into a lump sum if you come into a sizable amount of money during the payment cycle.
An IVA can permit you to write off up to 90% of your unsecured debt. This payment method is designed to ensure you only have to pay off affordable debt and are forgiven unaffordable debt.
Over the first several months of your IVA, you shall slowly lose contact with your creditors. Your IVA supervisor will be able to step in if they continue to berate you about paying off your debts after this time frame.
Risks With an IVA
A credit score serves as a record of reliability for future lenders. A poor credit score can minimize the likelihood that lenders will want to lend money to you in the future.
If you are a homeowner and need to refinance your home, you may receive a higher interest rate on your mortgage payments. If you still can’t remortgage, you may be liable for an extra 12 monthly payments.
Details of an IVA are listed on the public register and can make it more difficult to obtain credit. You also are going need to have a working relationship with your insolvency practitioner because they will need to grant written permission whenever you want to take out more than £500 worth of credit.
Minimal Assets Process (MAP) Bankruptcy
Bankruptcy is a legal proceeding that allows people to have an unmanageable amount of debt to make a fresh start on their finances. Some debts are unwavering, however.
Typically, filing for bankruptcy is a last-ditch effort to help people stay afloat. Minimal assets process bankruptcy is similar.
Minimal Assets Process (MAP) bankruptcy is designed for low-income parties to declare bankruptcy even if they don’t have a surplus of assets. There are very few conditions an individual much reach to qualify for MAP bankruptcy.
You must not have a large amount of fully-owned assets in order to qualify for MAP bankruptcy. This means you can’t own your home, have a car worth more than £3,000, and have a debt that is greater than £1,500.
In order to qualify as “low income”, you must prove that you have no extra money from your total earned income once you pay your essential living costs. You also can qualify if your income is only from benefit programs like monthly job seekers allowances.
Benefits of Filing for MAP Bankruptcy
If you decide to file for MAP bankruptcy, you must pay a filing fee of £50. Once you have submitted your payment, you can begin to apply with the assistance of an approved money advice organization. Once your bankruptcy has been approved, the creditors will no longer contact you to fulfill your debts.
Risks of Filing for MAP Bankruptcy
Six months after filing, you will be discharged on MAP. Six months after you are discharged, the bankruptcy will be in the finalization process. During this time, you must adhere to a set of rules.
These rules will place restrictions on how you can spend your money. This is a cumbersome request to many and deters them from seeking MAP bankruptcy.
When you are deciding if the MAP bankruptcy is the right avenue of debt forgiveness for you, you need to consider what kind of debts you are looking for. MAP bankruptcies will not forgive court fines, student loans, child maintenance areas, or fraudulent debts. If your debts are included in these groups, you will still need to pay these off after you file for bankruptcy.
Take Control of Your Finances by Seeking Debt Help
Although creditors do not have to write off your debts, through these debt relief programs, you can increase your likelihood of eventually returning to financial freedom. Once you equip yourself with the tools to navigate debt, you can be one step closer to effective money management.
Our team will run you through all debt options based on your income and expenditure and your types of debt to help you find a fitting financial solution. Connect with us to get debt advice and learn more about how to write off your debt.