- Emma Parker
- June 20, 2020
Debt is the most common issue people suffer after parting ways from their partners, and this becomes a severe headache when you are a single mother. While you have to manage to meet all needs for your child, you have to look for ways to settle your debts. When a relationship falls apart, it seems like the whole world is falling to pieces. It is, of course, difficult to cope with all of your expenses when you are in debt and have no financial support.
When you know that you owe money and you cannot pay it off, shrugging off the problem will only take a further toll on your finances. The loan cost will continue to add up, and you will get into a never-ending debt spiral. So, when you know you cannot handle your debts smartly, you should seek a solution instead of running away and panicking. Here is what you can do as a single mother to tackle this situation:
Consult a debt advisor
If you are struggling to tackle your debts, you should consult a debt advisor. A registered debt advisor is authorized to help people get out of debt. They can look over your current financial condition and negotiate with lenders.
When you contact an advisor, you will have to inform them of your financial condition and monthly budget to explain all repayment options that suit your needs. Debt advisors can help you get rid of all types of loans, including payday loans, text loans LondonCashLender, personal loans, overdrafts, CCJ debts, and credit cards.
Individual voluntary agreement
If your debts are eating up money, you need to live off. You can opt for an individual voluntary agreement. It is an agreement that you make with your lenders with the help of insolvency practitioners to agree to pay a part of total debt and to write off the balance after the completion of the agreement.
The insolvency practitioner will look over what you can afford and the length of the agreement. You will have to turn in full details about your financial condition like debts, assets, and income.
The agreement comes into effect if the majority of lenders allow for it. However, you need to make sure that you keep up with monthly repayments under the contract. Otherwise, the practitioner will call it off. Each repayment will also include set up and handling fees.
Debt management plan
Another alternative is a debt management plan. You will have to pay off your debts in full but at a rate that you can afford without borrowing more money. A debt management plan is a suitable option as flexible, and lenders freeze interest and other penalties. Once lenders agree to the negotiation offer made by the debt manager, they will stop taking further action.
However, there are some drawbacks to using the debt management plan. Some of the lenders may not agree to freeze interest. They can reduce interest charges, and that results in a longer period to pay off your debts. If you choose this plan, it will leave a negative impact on your credit file. Lenders will issue a default notice, and it will show up on your credit report for up to 6 years, making fewer chances of taking out a loan down the road.
A debt management plan is a suitable option only if you have surplus income available every month after paying all essential expenses like rent, utilities, and mortgage payments.
Bankruptcy is the last resort. You use it when you are no longer able to pay off your debts, and you do not have any assets at risk. You can declare bankruptcy when you have left with meager money after paying all necessary expenditures like rent, utilities, etc. However, bankruptcy is not as simple as it seems. It can have a long-time impact on your financial life. For instance:
- Assets not included in bankruptcy can be sold out
- You will not have surplus income as it will be used to make payment to the trustee.
- It will show up on your credit file for up to six years. As a result, you may not be able to take out a loan.
Debt relief order
If approved, this formal procedure will put debt repayments, interest penalties, and recovery procedures will put on pause for 12 months. After the end of this period, your debt will be written off if your financial condition remains gloomy as before. However, you need to meet the following conditions to get a debt relief order:
- You do not owe over £20,000.
- The surplus income is less than £50.
- You have been living in England for three years.
- Your total assets do not worth over £1,000.
- You have not applied for a debt relief order in the past six years.
Even though you have a debt relief order, you are allowed to make payments of debts that include student loans, any loan that you take out after the release of order, and fees imposed by the court.
Whatever the debt settlement plan you choose, make sure that you have considered all pros and cons. Dealing with debt is never easy. Take debt advice so that you do not take the wrong step to damage your current financial situation further.