Dealing with debt - a look at your options

Debt is becoming more of a household termnowadays, and if you're dealing with debt you may be wondering what help isavailable to you.

In Ireland, there's a range ofsolutions that could help people dealing with different levels of debt - frommanageable debts to unmanageable debts. Some of them are offered by debtsolutions providers such as DebtAdvisory Centre Ireland.

Pleasebear in mind that the following overviews of Irish debt solutions are notdesigned to (and will not) provide a comprehensive guide to a borrower'soptions. Anyone looking for a way of dealing with their debts should seekprofessional debt advice to find out which approach would be the mostappropriate for their situation, and make sure they understand theconsequences.

Debt consolidation

Debt consolidation involves taking out anew loan and using it to repay several debts in one go - leaving you with justone debt to repay to one lender.

A debt consolidation loan can help to makeyour finances a little easier to manage, and it could also lower your monthlyrepayments (if you arrange to repay your loan over a longer timeframe than youroriginal debts, that is).

Your debt consolidation loan's interestrate may be lower than the ratescharged on your 'previous' debts, which means you could save money - but it'simportant to note that repaying your debt over a longer timeframe could stillcost you more in the long run… because you'd be paying interest for longer.

Debt management

Debt management is an informal agreementbetween you and your unsecured creditors. It can only be suitable for you ifyou are struggling to repay your debts but you could still repay them within a reasonable period of time (albeitunder different terms than those originally agreed).

If you choose to arrange a debt managementplan through a debt management company, they will talk to your creditors onyour behalf, asking them to agree to reduced monthly payments over a longerperiod of time. Your creditors aren't obliged to agree to any changes to theoriginal agreement, but if they do, the payments you make will be based on anamount you can afford after youressential costs have been covered.

Please Note: entering a debt management plan means you're defaulting on your originalagreements - and this can be recorded on your credit file for six years, makingit harder and/or more expensive to obtain credit for this time. Also, if youagree to repay your debts over a longer timeframe, it could lead to you payingmore because of interest.

FSA

An FSA (Formal Scheme of Arrangement) is alegally binding agreement between you and your creditors. On an FSA, you'll berequired to repay as much of your debt as you can afford - the portion youcannot afford can be written off (providing the agreement comes to a successfulconclusion). However, please note that FSAs for individuals are very rare.

At least 60% of your creditors (by numberand by value of debt 'owned') must accept the terms of your FSA for it to goahead. If they don't, the agreement won't be approved and you will have to bedeclared bankrupt.

Bankruptcy

If your debts total more than €1,900, andyou've recently committed an act of bankruptcy (you haven't complied with abankruptcy summons requesting a payment, for example), your creditors might beable to petition for your bankruptcy. If you enter bankruptcy, your propertyand assets may be sold.

Of course, if you can't repay your debts,you can petition for your own bankruptcy... but only if your house and otherassets are worth more than €1,900.

Bankruptcy is usually seen as the 'lastresort' for people struggling with their debts. You could reduce the risk ofyour debts becoming unmanageable by seeking debt advice at an early stage.