With so many products that make it easy to get into debt, many UK consumers find themselves on the other end of huge balances they cannot repay. Though falling into debt can be simple, figuring out how to get out of it can be difficult. Many debtors wonder which kinds of debt can be included in debt relief programs like debt management plans.
Overdrafts on current accounts provide a financial cushion to pay for unexpected expenses without the need for loans. For short-term cash flow issues, overdrafts can be suitable but over the long-term, they are an expensive borrowing mechanism. According to the Consumer Credit Counselling Service, consumers are currently saddled with higher overdraft debt balances. This may partially be due to the difficulty getting approved for a credit card or bank loan.
Consumers are not quick to reveal overdrafts when approaching debt advisers for financial assistance. They many not view the overdraft as debt because they plan to clear it with an upcoming paycheck. Some consumers may worry that their bank accounts will be closed if their overdrafts are included in a debt management plan. Debt advisers recommend that all qualifying debts, including overdrafts, be included in this plan. Though a new bank account may need to be opened, the process is very simple.
A debtor is permitted to use new overdrafts during a debt management plan but this will increase interest expenses, decreasing the money available to repay other debts. This can unnecessarily extend the debt repayment term and other creditors may frown upon the additional debt. If the overdraft is taken on a joint account, the other party must handle overdraft and interest repayment during the plan term.[doyouneed01]
Personal loans are another area of question for many debtors. They wonder which types of personal loans can be included in debt management plans. An unsecured personal loan can usually be included but a personal loan used to purchase a vehicle is another story. If it is secured with an asset, as is the case with a hire purchase agreement, the loan may not be included and must be paid in full as agreed to avoid vehicle repossession. If it is an unsecured personal loan, it can be placed into the plan without the car being at risk.
The original loan agreement should reveal the type of loan. A personal loan holder who is still unsure should present the agreement to a debt adviser for review. Prior to the financial crisis, some mortgage lenders attached large, unsecured loans to mortgages. Though a mortgage is typically secured, the attached loan may not be, rendering the home safe if this loan is included in a debt management plan.
A joint personal loan can also raise questions because the lender may seek full repayment from the other borrower. However, some lenders accept repayment made through a plan to manage debt. Even lending from friends and family can be included in a plan to eliminate debt. Debt advisers help consumers navigate these complex situations with ease.
An introduction video to the Consumer Credit Counselling Service in the UK