Loan Debts

Loans: personal and secured debts

Personal, unsecured loans are widespread in the UK and so are secured loans such as car finance and mortgages. One of the commonest reasons that people get into debt problems is the number of different loans they have. It can be difficult to keep track of all the payments due on a mortgage, a car, several credit cards and any personal loans.

Multiple payments can be confusing and it’s important to make the right choices. If you have a number of different debts with different lenders, some of your main choices are shown below.

An important first step with any of these solutions is to establish an accurate monthly budget so that the right solution can be selected.

Individual Voluntary Arrangement (IVA)
Unlike the two options below, an IVA is a formal legal agreement with your creditors. It writes off a significant portion of your debt (typically something like half) and in return you make regular monthly repayments over five years. An IVA is a common alternative to bankruptcy when debts have become very serious.

Debt Management Plan
Debt Management Plans are based on an informal agreement between you and the people you owe money to. An advisor helps you to work out what you can afford and negotiates for you, seeking lower payments and a possible freeze on interest payments. This can work well for some people but there is no legal weight to the agreement, so your creditors are free to change their minds and the plan will also have a negative effect on your credit rating.

Consolidation loan
A consolidation loan involves taking out a single loan to pay back existing debts. This will often be at a lower interest rate than debts such as credit card debts, and over a longer period. Note that repayments on a consolidation loan can go up if interest rates change.

Further reading
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