Mon 17th Mar, 2008
The challenge of repaying your debt
Imagine you are in the situation where you actually want to pay off all of your debt but your lender will not allow you to. This is a common situation faced by thousands of borrowers across the UK each month.
The problem arises from the fact that in order for many of these borrowers to be able to repay their existing debt they need their lender to freeze the debt they currently have, in effect stop charging interest on their credit card or loan. This will than give the borrower a much higher possibility of repaying the loan instead of going into bankruptcy. If a borrower was to be declared bankrupt, then the bank certainly wouldn’t get all its money back.
In order to freeze debt the borrower must enter into an agreement with the bank. However many lenders do not like to do this as they view these agreements as losing them money – the interest that they make their profit on.
Many borrowers cannot afford to repay any more than the minimum repayments on their credit card each month. This means the possibility of actually clearing their debt is almost impossible, as interest repayments become a larger and larger part of the debt (monthly credit card interest often matches the minimum repayable, so the debt doesn’t diminish).
Applying for an individual voluntary arrangement (IVA) is one way of solving your debt problems. Under these agreements, those owing over £15,000 agree to repay a percentage of all of the money owed typically over a period of five years.
The trick is in negotiating with lenders to freeze interest repayments. This in effect prevents the debt from growing any further. However many lenders refuse to enter into these agreements.