When it comes to dealing with debt, formal debt solutions are a fantastically effective method of dealing with debt. Not only will they allow to write off significant amounts of debt, but by being legally-binding, they can offer other safeguards such as putting an end to creditor harassment and denying any court action against you.
Having said that, informal debt solutions serve as a sort of half measure. They do not have all of the benefits of their formal counterparts, but they also have some of their own unique benefits. In this article, we will outline why an informal solution can be an excellent choice, and where they could possibly fall short of the mark.
Positives of an Informal Debt Solution
Avoid Insolvency – When you sign up for something like a Trust Deed, IVA, or bankruptcy, declaring yourself as insolvent is part of the process. This means that you are in a position where you cannot hope to pay back the money you owe within a reasonable time, or perhaps ever. This, in combination with the following debt collection process, will remain on your credit history for the next few years making it difficult to get any form of credit.
When you apply for a DAS or DMP, however, you do not have to declare yourself as insolvent. This means that after you complete the repayment process, you will be in a much less compromised position in terms of your credit rating; meaning you will have a significantly easier time managing your money and applying for credit.
Avoid Interest and Fees… Maybe! – When you apply for a DAS or DMP, it is in your creditors’ best interest to make the process as easy as possible for you. After all, if you become insolvent or bankrupt, then there is a good chance they won’t receive any money at all. With this in mind, they may make certain concessions for you. It is not unusual for creditors to freeze your balance, meaning you will only pay back what you owe at that time; they will not add on any interest or other fees.
Simplify Repayment – One of the most troubling things about being in debt is struggling to determine what has to be paid, and who should be paid first. When you enter into an informal solution, you will only make a single payment to us, who will then distribute it between those whom you owe.
In addition, you can also decrease the amount you are paying every month. This means that you will have more money to put towards either other dates or to spend on your daily expenses.
Negatives of an Informal Debt Solution
Not Legally-Binding – The beauty of a Trust Deed, IVA, or bankruptcy, is that the process is legally-binding. This means that they do not require ongoing creditor support; once the agreement is in place, as long as you keep delivering your monthly repayment, it will continue.
Informal solutions, on the other hand, do not have this guarantee. They rely on the ongoing support of the involved creditors. However, as long as you meet with the terms of the agreement, it would be very unusual if the creditors did back out. After all, they would be getting their money!
Creditors Can Still Contact You – When you enter into a formal debt solution, creditors are legally prohibited from contacting you. Instead, they have to contact us, who can relay any vital information to you upon your annual review.
Informal solutions do not grant this protection. Creditors can contact you as much as they like, within the harassment guidelines. However, it is worth noting that so long as you are making progress on your bill, they will have very little reason to contact you as progress is being made.
No Debt Written Off – When you enter into an informal solution, there is no opportunity to write any debt off. You have to pay back every penny you owe. If your repayments are reduced, this also means that you may be in debt for longer as well.
However, you should keep in mind that it is better to extend your repayment period than to default on the debt altogether and be forced into insolvency, rather than going voluntarily.
Do You Need Debt Help?
At debt free life, we specialise in providing practical and effective debt solutions for Britons throughout the country who are struggling with debt. We appreciate that it the sheer number of options can seem a bit confusing, which is why we attempt to make things clearer with blog posts and articles like this one.
Having said that, sometimes it is easier to hear information straight from the horse’s mouth. This is why we encourage anyone with any questions about debt solutions and what we can do for you to phone us directly so that we can get to know you and your situation!
All of the information we provide is entirely free of charge, and you are under no obligation to move forward with any of it; you are always in control. We listen, we advise, you decide.
To speak to one of our friendly advisers today, give us a call on 0800 808 5124.
Alternatively, take a moment to fill in our debt calculator, and one of our team will be in touch as soon as possible, at a time which suits you!