Debt UK

By: EconomyWatch Content   Date: 17 November 2009

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EconomyWatch, Content Team

 

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Debt in UK has risen and become an area of concern since 2008. According to the Office National Statistics, net debt liabilities of the UK public sector hit £800.8 billion, or 56.8% of the country’s national GDP, as of July 2009. In fact, UK debts were at the highest level since the government began to keep records in 1974.

UK’s extent of national debt has risen sharply since 2008 because of:

  • Economics recession, which resulted in lower tax receipts.

  • Higher spending on unemployment benefits.

  • Financial bailout of several banks such as Northern Rock and RBS.

In the personal debt sector, the total lending in September 2009 stood at £1,459 billion, representing a £0.7 billion rise in the month. As a result, an average household debt in the UK (including mortgages) stood at £58,340 in end-September.

Solutions to Debt UK

Borrowers in the UK can opt for any of the following solutions to reduce their debt worries:

                                          

Individual Voluntary Arrangement (IVA): This is a legal process through which you and your licensed Insolvency Practitioner (IP) make a formal proposal to your creditors to clear your unsecured debts. This process helps you to avoid bankruptcy. The IVA should not, however, be confused with the Debt Management Plan (DMP). The DMP is less formal and conclusive.

In most of the IVA cases, the borrowers need to make only one affordable payment per month over a period of 60 months.

The monthly payment for a borrower is calculated with the assistance of debtors by taking into account:

    • All of the assets and liabilities

    • His/Her income

    • His cost of living

Debt Management Plan: This plan is best for borrowers who are confident of repaying their debt in less than five years. Under this plan, you pay a fixed amount of sum, calculated on the basis of your income and cost of living, spanning a period of time to your creditors through a debt management company.

Bankruptcy: You should opt for this plan only after you have considered all alternatives and are convinced of the non-feasibility of each one of them. In this option, your assets are sold by an Insolvency Practitioner and proceeds added to your bankruptcy estate.

Another option is the secured consolidation loan. Opt for this plan if you need to reduce your monthly payments, opt for early repayment of debt, settle IVA or reduce interest rates on your loans.

                                                          


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