Whilst a debt management plan manages financial difficulties, a Debt Relief Order can write-off debt in 12 months. Both debt solutions help prevent creditor harassment.
The Citizens Advice Bureau (CAB) dealt with an average of 4,760 personal debt problems each day during 2008. Financial difficulties, creditor harassment, and deteriorating health are troubling experiences, each inextricably linked to personal debt. Is a debt management plan or a Debt Relief Order the right debt solution for tackling financial difficulties?
Who is a Debt Solution Suitable For?
Growing personal debt problems mean that identifying a debt solution, such as a debt management plan or Debt Relief Order, is now essential. Whilst a debt management plan can be chosen by both homeowners and tenants, a Debt Relief Order can only be pursued by the latter. The eligibility for a Debt Relief Order is also more stringent meaning that many individuals with personal debts won’t qualify.
Write-Off Debt with a Debt Relief Order Vs Managing Debt with a Debt Management Plan
A debt management plan is a means of managing personal debt. It seeks to place all unsecured debts under one roof. The monthly payment is then disseminated to creditors on a pro rata basis. Whilst further interest and charges may be frozen, this isn’t guaranteed. Whilst a debt management plan helps prevent creditor harassment, it can take many years to clear personal debts.
Debt Relief Orders write-off debt when unsecured liabilities are less than £15,000. They were designed as a debt solution for low-income families. In order to qualify, a debtor’s assets must be below £300 and disposable income must not exceed £50 per month. Full assistance will be provided by an intermediary, a qualified debt advisor. It is possible to become debt-free in just 12 months.
Who Stands to Benefit from a Debt Relief Order?
Debt Relief Orders – Pros and Cons
How Do Debt Problems Affect Family Finances?
Preventing Creditor Harassment with a Debt Solution
Whilst a debt management plan isn’t legally binding, creditor harassment is less likely. However, a debtor or creditor can pull-out of a debt management plan at any time so this situation can change. However, a Debt Relief Order is legally binding so creditor harassment in order to collect personal debts would be illegal.
Debt Solutions and Bad Credit
Entering a debt solution, such as a debt management plan or Debt Relief Order, will result in a bad credit rating. However, those struggling with financial difficulties and high personal debts have usually already missed monthly repayments due to affordability rendering this irrelevant. After a period of 6 years, any bad credit entries will no longer show on a personal credit report.
A debt management plan is most suitable for a home owner with modest levels of personal debt. However, tenants with minimal assets and disposable income should seek to write-off debt with a Debt Relief Order. A debt management plan only manages debt meaning that it will take far longer than 12 months before someone becomes debt-free.