As the number of people across the western world battling debt problems has increased, so has the choice of potential solutions. Debt management consultancy is big business and governments are investing time and energy into creating solutions to help people manage their finances better.
Of course, managing your finances sounds great, but it can seem easier said than done depending on your starting point. If you are already in severe debt and it just seems to get worse with each passing month, you might think the situation is hopeless.
In this respect there are two pieces of positive news. One is that you are not alone, and that thousands of others are facing similar challenges. The second is that there are always solutions – and even if your debt seems insurmountable, you might well be able to rid yourself of it entirely in just four years with a trust deed.
What is a trust deed?
The Scottish government introduced the concept of trust deeds to provide people in exactly the kind of situation we described with a way to eliminate their debt for good. The deeds are administered by licensed practitioners like the ones here, and are available to anyone living in Scotland who has unsecured debts in excess of £5,000.
Under a trust deed, the practitioner makes a formal agreement with each creditor that the user will pay a set amount over a set period of time – usually it is four years, but sometimes it is longer. At the end of the agreed period, the creditor agrees to write off whatever is outstanding, and the debt is gone.
Is it right for you?
That is a question that is impossible to answer here with a yes/no, as everyone’s circumstances are different. It is essential to sit down with your financial advisor and go through all your finances to arrive at a decision as to whether this is the right step in your circumstances.
Broadly speaking, the advantage of a trust deed is obvious – it means you get to pay off the debt much more quickly, and that a proportion of it will be written off. Because the practitioner takes over the management of your debts, it also means you will stop receiving the threatening telephone calls and letters.
Of course, there are downsides, though. When you enter into this sort of arrangement, it will show up as a marker on your credit report, meaning that even taking out a simple credit agreement for a mobile phone contract is liable to be problematical. But once the plan reaches its conclusion, your credit rating will start to improve.
How much will you pay?
The answer to that depends entirely on your circumstances. The advisor will start with your current situation in terms of your incomings and outgoings and work backwards from there to arrive at a sum that is going to be affordable for the four-year period. He will then “sell” whatever numbers have been arrived at to your creditors.