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Tackling your debts

Can a debt solution freeze the interest on my debt?

Posted 06 March 2013

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One big advantage of entering a debt solution is that you could freeze interest and/or charges on your unsecured debts.

Yes, it really is possible to freeze interest and charges on your unsecured debts with some of the debt solutions we offer. In some cases, you could have the interest written off by successfully completing a debt solution.

If you're having debt problems, getting interest frozen with a debt solution is just one of the ways Debt Advisory Centre could help. We could also take over contact with your lenders and help you budget to keep enough money aside for your essential living expenses.

Entering a debt solution will impact your credit rating, making it more difficult to borrow money again for up to six years, so you need to consider this before you apply. While most debt solutions don't write off all of your debt, they can help you to get back in control of serious money problems.


Debt management

If we think a debt management plan would be suitable, we could negotiate with your lenders and ask them to accept lower repayments, and freeze interest and charges too.

If they agree to freeze interest on your unsecured debts, it'll help you complete your debt management plan more quickly than you could have if interest was still making your debt grow. Lenders don't have to do this - and they don't have to accept you onto a debt management plan either. We will negotiate with them on your behalf and try to demonstrate that it really is the best option for you.


IVA (Individual Voluntary Arrangement)

Interest is frozen on all unsecured debts included in an Individual Voluntary Arrangement.

Whatever you cannot afford to repay is written off upon successful completion of the IVA, including interest. This only applies to unsecured debts - an IVA cannot write off the interest on a mortgage and you'll need to keep making your mortgage payments yourself to remain in your home. Homeowners are usually asked to remortgage their property and use their available equity to repay their lenders as a condition of the IVA.

If you cannot realistically afford to repay your unsecured debts in full within a reasonable amount of time, then an IVA could help you to regain control of the situation and get out of debt at a rate you can afford.


Bankruptcy

Bankruptcy is for people with more severe debt problems. It could write off all of the unsecured debts that you cannot afford to repay.

During bankruptcy, unsecured debts are frozen and you repay as much as you can realistically afford - you might have to make payments for three years, although you'd be allowed to keep enough back for essentials. You'll need to keep on making your mortgage payments to remain in your home, and interest would not be frozen on your mortgage. In fact, your home may have to be sold if you're declared bankrupt.

At the end of the bankruptcy, all of your remaining unsecured debt is written off.

Bankruptcy remains on your credit report for six years, and can impose other financial restrictions that can apply for longer. If you're having severe debt problems, though, bankruptcy could still be the best way for you to put your debts behind you.

by Emily Bancroft

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.