£10 000 In Debt On Credit Cards And Other Debts?

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Do you owe £10,000 and are struggling to repay your outstanding debt?

It may be stressful having to continually receive phone calls, emails, and letters from your creditors if you cannot make repayments on time. The good news is, for those who are 10000 in debt, a full suite of debt solutions is available to you, including Debt Relief Orders which are not available to those who owe more.

Below will run through the options available to you to get your finances back under control and move to becoming debt free.

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What Are the Difficulties of Trying to Reduce 10K of Debt?

If you have racked up £10k in debt, the monthly repayments will be substantial. If you can only make the minimum monthly repayment, you will not get out of debt. Instead, the interest on the balance is allowing debts to creep higher.

£10 000 Credit Card Debt

Unsecured personal loans typically have an interest rate below 10%, but credit cards can have an interest rate well above 20%. If all your outstanding debts are card debt, then £10,000 will become a substantial burden, especially if you cannot pay back any of the principal each month.

How An IVA Could Radically Reduce Your Debts

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What Are the Immediate Steps to Take If You Are Unable to Pay off Your Debts?

It will help if you get professional debt advice as soon as you feel you are no longer able to pay back your outstanding debts. Three avenues open to you are Citizens Advice, the National Debt Helpline, or a reputable debt management company. 

A good debt adviser will be able to offer the following options:

  • Recommend ways to deal with your debts that you may not have thought exist.
  • Offer guidance on better methods to manage your income and finance.
  • Speak to you in a non-judgmental manner so you will feel better and not worst about your situation.
  • Treat all interaction with a high degree of confidentiality.

Are There Any Money Management Techniques That May Work?

There are two proven techniques for managing your debts that may effectively bring your finances back under control before you need to consider a full debt management solution.

The avalanche method:

Also known as debt stacking, the avalanche method works by paying off your debts, starting with the highest interest rate first and is a 3-step method:

  1. 1
    Make a minimum payment on all outstanding balances.
  2. 2
    Pay additional money to the balance incurring the highest interest rate.
  3. 3
    When the debt with the highest rate is repaid, start repaying the debt with the next highest interest rate.

As you move to pay off each outstanding debt, it means that you free up spare funds to channel into the next debt, a strategy proven to pay off your creditors quickly.

The snowball method:

With the snowball method, you start repaying the smallest debts and work your way up to paying off the largest of debts.

As with the avalanche method, there are three steps:

  1. 1
    Make a minimum payment on every outstanding debt balance.
  2. 2
    Put spare money into paying off the smallest creditor balance.
  3. 3
    Once the smallest balance is repaid work on paying off the next smallest debt until you finally reach the largest account balance.

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What Solutions Are Available for Me to Pay Off £10000 in Debt?

The snowball and avalanche money management techniques can help you pay off your debts. Unfortunately, proven systems do not always work; if this is the case for you, a structured debt solution may be the only avenue left to avoid defaulting on debts of £10,000.

Debt Relief Order (DRO)

If you have less than £20,000 in outstanding debts and assets of less than £1,000, a Debt Relief Order or DRO might be a viable solution for you. DRO's are available in England, Northern Ireland, and Wales (not Scotland). If they think you qualify for a DRO, your Debt Adviser will send in your application to the official receiver, a civil servant at the Insolvency Service. An official receiver looks at your financial circumstances before deciding whether to grant a DRO.

If granted, a DRO freezes both your debt payments and interest for a full 12 months. At the end of the DRO, the list of qualifying debts is discharged meaning they do not need to be repaid.

The benefits of a DRO:

  • Once a DRO is in place, the official receiver will tell all the creditors that they cannot ask you to repay outstanding debts for 12 months, after which, they are written off.
  • A DRO can be a lower-cost alternative to declaring bankruptcy. A DRO costs £90 to put in place, whereas bankruptcy costs £680 before you can apply.
  • Despite a Debt Relief Order being a formal agreement, there is no requirement for you to appear in a county court.

The drawback of putting a DRO in place:

Not all types of debts can be placed in a DRO and those you still need to pay will include:

  • Student Loans
  • Child maintenance
  • Secured loans (debts held against an asset you own)
  • Debts incurred after a DRO is in place.
  • Outstanding TV licence fees
  • You will be unable to take out more than £500 without advising a lender that you have a DRO in place.
  • You cannot operate as a company director.
  • It is not permitted to start or manage a company without the permission of the court.
  • Your name will go on the Individual Insolvency Register which is available to be viewed by the public and negatively impacts your credit rating.
  • It is a criminal offence to break the DRO conditions, and by doing so, you could face prosecution or a bankruptcy order.

DCL – Debt Consolidation Loans

There are two styles of debt consolidation loan, also known as a DCL, that exist. One type is for secured debts and the other for unsecured debts. Secured debts are borrowings that secure against an asset such as a car or a property. Unsecured debts do not pledge against an asset.

In a DCL, the idea is to bring down the monthly repayments through a lower interest rate and an extended term. It is achieved by amalgamating various individual loans into a single manageable payment. To do this, a DCL requires you to take out new credit with a provider which pays off all the outstanding individual balances. As with other solutions, there are both advantages and disadvantages to this option.

Benefits of a DCL:

There are two key benefits of a DCL:

  1. 1
    You will only owe money to a sole lender, reducing the stress of dealing with multiple creditors at the same time.
  2. 2
    The monthly payments will be lower, making repayments more manageable and improving your quality of life as you work towards becoming debt free.

Drawbacks of a DCL:

  • A DCL does involve fees and additional costs to put in place, which initially may make your financial circumstances even harder.
  • Your outstanding debts may take longer to pay off as often a DCL reduces monthly repayments by extending the duration of your debts.
  • Depending on the duration of the credit arrangement and the interest rate you may end up paying more over the lifetime of the DCL.

DMP Debt Management Plan

A debt management plan is a solution put in place by a DMP provider who will look at your financial affairs and calculate a budget that allows you to pay back your debts at a lower rate and reduce monthly payments.

If the recommendation is that a DMP is appropriate for you, the provider will contact your lenders on your behalf with a proposal. If creditors approve the debt management plan, payments will go to them through your DMP.

Benefits of a DMP:

  • Only one single monthly payment needs making into a DMP, and it is then the DMP provider who will make the individual payments to all your creditors.
  • The DMP provider reviews your DMP periodically so you only repay what is affordable for you.
  • After your provider puts together a budget of your daily needs, only what remains and is affordable goes to your lenders.

Drawbacks of a DMP:

A DMP does have some disadvantages:

  • A DMP differs from an IVA in that creditors can still add both interest and charges to your outstanding borrowing.
  • A creditor may still take further moves to have their debts repaid which includes a CCJ (county court judgement).

IVA – Individual Voluntary Arrangement

An Individual Voluntary Arrangement (IVA) is a solution where an Insolvency Practitioner (IP) puts forward a proposal to your creditors to repay your outstanding debts in a viable way. 

The proposal outlines:

  1. 1
    How much you propose to repay as a percentage of the outstanding debts.
  2. 2
    A Statement of Affairs outlining your income, assets, and personal finances.

For an IVA to gain acceptance, a minimum of 75% of the creditors must agree to the proposal application. Creditors will on occasion accept repayment for as little as 25% of any outstanding borrowing, although above 30% is more typical.

Once a proposal gets approval, the IP will set up and then administer the agreement on your behalf. An IVA has a duration of five years and involves making a monthly payment into the IVA, which then passes through the IP to the different lenders.

The IVA is a formal agreement agreed in a court of law, and it means that creditors cannot take any action against you. The IVA terms must be adhered to by the debtor otherwise, an IP can recommend that bankruptcy proceedings take place.

Benefits of an IVA:

  • As soon as you enter an IVA, it will end stressful calls from lenders as they can no longer contact you directly. All correspondence must go through the IP who handles the day-to-day administration of your plan.
  • Entering an IVA does not restrict the type of employment that you can take up. You can still work in more financially sensitive sectors such as the civil service or the finance industry. If you take another path such as bankruptcy, it may result in you being unable to work in specific sectors.
  • Neither the IP nor creditors want to see an IVA fail. The proposal agreed will make monthly payments affordable, allowing the debtor to maintain enough income to pay for daily living expenses and bills.

Drawbacks of an IVA:

  • An IVA does not include all debts as part of the plan. You cannot have any secured borrowing where assets like houses or a car are pledged in an IVA.
  • As soon as you enter an IVA, you will also see a restriction in the functions you can undertake on your bank account. A debtor can access basic account functionality with no access to a cheque book, overdrafts, or cards.
  • An IVA is a formal agreement that is legally binding in a court of law. It is subject to an annual review throughout the plan, and if at the review it is shown that you can pay more, then you will be obliged to do so.

Bankruptcy

Bankruptcy is often thought of as the final option when trying to repay outstanding debts. Even if you do not want to apply for bankruptcy yourself, a creditor may choose to initiate proceedings to bankrupt you in a court of law.

Benefits of bankruptcy:

  • Once a bankruptcy order occurs, creditors cannot pursue other forms of action, including count court proceedings.
  • Creditors cannot contact you, which takes away having to field stressful phone calls and emails.
  • You can keep a portion of your income, allowing you to live from day-to-day.

Drawbacks of bankruptcy:

  • If you are a declared bankrupt, you will be in a register for the public to view
  • Bankruptcy may stop you from undertaking certain types of job, such as working as a civil servant.
  • When you are bankrupt, it may prove challenging to get access to credit as your score will be adversely affected six years after a bankruptcy order.

How To Clear 10k Of Debt: Final Thoughts

Owing money can be stressful, whether from creditors always calling you or worrying about buying food and paying the rent. Whatever the reasons for ending up owing £10,000, it is crucial that you take steps immediately before your finances become uncontrollable.

The first step is to get financial advice from Citizens Advice, the National Debt Helpline, or a debt management company. With sound advice, you may be able to get your money matters back in check or be guided towards a debt solution that closely matches your circumstances.

Either way, take some action now to take back control of your life and become debt free.

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10k in credit card debt relief FAQ's

How much money is considered in debt?

A debt-to-income ratio above 43% of your salary or income is a widely accepted and statistically proven figure. It is where a debtor will start to have trouble repaying unsecured debts and will be in too much debt, whether it is credit cards or loan-based debts. With rent, bills and other monthly expenses, high debt to income ratios make it difficult to maintain monthly repayments.

Is it reasonable to maintain some outstanding debt?

However small, making regular monthly payments over a sustained period is good for your credit score. Rating agencies look favourably at a record that shows regular debt repayments as it confirms that you are a reliable debtor.

Why is a credit score cleared after six years?

A credit report is a score that rates your debt repayment history, itemising all your loans and credit card accounts made to creditors in a statement. Six years is a milestone where creditors can still claim against you, so it is not erased, but not accounted for from a record viewpoint.