by 350.org

The best debt solution for anyone will depend on their particular financial situation.  There is no one solution that can always be the best for everyone.  Your starting point should be to have an understanding of the main debt solutions available and what circumstances they are most appropriate for.  You will then be able to see which option is likely to be the best fit for your own situation.

I want to get consolidation loans out of the way to begin with, because this is often the first thing people consider when they are looking for a way out of debt.  It must be said that there are not that many situations where borrowing more money is going to ultimately leave you in a better position.  There are some circumstances when it can be the best option, but these are far less frequent than many people imagine.

The attraction of such loans is the prospect of lower monthly payments and only one payment to make, but if you are not careful you can pay a high price for this short term gain.  The problem is that your new loan will mean you are paying for your debts over a much longer period, with the result that by the time the loan is paid off it has cost you far more than you originally owed on your old debts.

A much better prospect is likely to be a debt management plan.  This too is often referred to as debt consolidation, especially in the US, but it does not involve taking out any new loans.  Debt management is where a company set up a payment plan for you, which means you just make a single reduced payment to the debt solution company instead of to all your creditors.  The payments on such a plan are lower because the company negotiates with your creditors to set up more favourable terms for the repayment of your debts.  You usually end up paying less in interest and other charges, which means that your monthly outgoings are reduced.

This is generally regarded as the best debt solution for substantial amounts of unsecured debt, because it is an informal arrangement which can be modified if your circumstances change.  Unsecured debts include any kind of debts that do not have a legal binding to a valuable asset as security.  Mortgages are not unsecured because they are tied to your house, which can be repossessed if you default on payments.

To be considered for a debt management plan you will have to have a source of income that is sufficient to cover your normal monthly outgoings and the payment required by the plan.  Some people find that their situations are such that they simply do not have enough spare money for the necessary payments.  For these people the best debt solution is likely to be debt settlement if they are in the US or an Individual Voluntary Arrangement (IVA) if they are in the UK.

Debt settlement is quite different to debt management in that the main idea is to get agreement to write off as much of your debt as possible, rather than attempting to repay it all.  This is a process undertaken by debt settlement companies who have skilled negotiators working on your behalf to agree deals with creditors.  The incentive they use to persuade creditors to settle is that the agreed settlement amount will be paid in a lump sum.  Their other incentive is that when dealing with people facing possible bankruptcy, they understand that getting at least part of the money back can be a more attractive prospect than perhaps getting nothing at all if they go bankrupt.

To make it possible to pay off the settlement amounts you will need to stop paying creditors when you start on a debt settlement program, and put money instead into another holding account.  This can then build up over the period of the negotiations and be used to make settlement payments as terms are agreed.

The other option I mentioned for UK residents is an IVA, which to all intents and purposes does the same job as debt settlement.  This is a formal agreement only available in the UK, whereby you make a fixed monthly payment that goes towards your debts, but at the end of the agreement your remaining debts are written off.

Both debt settlement and IVAs are designed for people in very serious situations who are not managing to keep up with their debt repayment and who might otherwise face bankruptcy.  Debt management is for people who are struggling with substantial debt but do have a steady income.  All of these options are only suitable for unsecured debts, such as money owed to card companies or loan providers and the best debt solution for you will depend which situation you are in.  Whichever option you require, you will need to take steps to find the best debt solution company you possibly can to work on your behalf.

Taking care about how you choose a debt company is absolutely vital because there are some who are simply not very good and others who are verging on being scam artists.  It is easy to avoid such companies by using only organisations that have been recommended following thorough research.  If you start off with a list of the best debt solution companies, known to be the most reputable and ethical, you can then apply to three or more of them, which will give you the opportunity to make a comparison.  Applying online is very simple and puts you under no obligation to proceed.

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