Coping with Christmas debt

Unfortunately, Christmas can be a very expensive time of year, and can even land some of us in debt. When money is tight, many of us choose to use credit cards, overdrafts and loans to make our money stretch that little bit further – without necessarily thinking through how/when we will be able to repay the debt.

When used in the right way, credit cards can be a very useful source of additional funds – but problems can (and do) occur when people borrow too much and it becomes difficult to repay the debt.

Of course, the best course of action is to avoid falling into debt altogether this Christmas. But for those who do find themselves struggling with debts – there are a few things they could do.

Seek debt help
Debt help is available from many financial organisations, and is often offered for free. But what is debt help?

‘Debt help’ means just that: help with your debts. In some cases, this may involve advice on talking to your creditors to discuss an alternative repayment plan so you can regain control of your finances. However, a professional debt adviser may, after assessing your situation, advise you to consider a specific debt solution.

What debt solutions are available?
There are various debt solutions available, and each one is designed to help people in different situations. Here’s a brief summary of just one of these debt solutions – an IVA (Individual Voluntary Arrangement).

Please note: the following description does not provide a comprehensive guide to IVAs – anyone thinking about committing themselves to any kind of debt solution should discuss the benefits and consequences with a professional debt adviser.

•    An IVA is a form of insolvency.

•    It is only appropriate for people with a high level of unsecured debt that they can’t realistically expect to repay within a reasonable period of time. So it wouldn’t be appropriate for someone who’d run up a few hundred pounds of debt over Christmas – unless this turned out to be the ‘straw that broke the camel’s back’, in which case they may wish to consider an IVA.

•    For an IVA to go ahead, the ‘IVA proposal’ (which tells the creditors how the borrower intends to repay money if the IVA goes ahead) must be approved by voting creditors who account for at least 75% of the person’s debt.

•    The borrower must, in most cases, be able to commit to making regular reduced payments to their IP (Insolvency Practitioner) for the duration of the IVA (which, in most cases, is 5 years). If they can make those payments, and can fulfil any other obligations included in the terms of the agreement – such as releasing equity from their home, for example – their creditors will write off the outstanding debt once the IVA has come to a successful conclusion.

•    Entering an IVA will stay on the individual’s credit report for six years, increasing the cost and/or difficulty of obtaining further credit within that time.

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