The Different Debt Solutions Available to You

If you’re struggling to manage your finances, have mounting debts or have received letters demanding payments then you may have looked at the different debt solutions available to you.

From IVAs, to debt management plans and consolidation loans, there are so many different solutions out there that it can be difficult to know which is right for you.

With that in mind we look at some of the different debt solutions that you might have heard mentioned and explain a little more about them.

Debt Consolidation Loan

Consolidation loans are perhaps the most common debt solution available and one that you may have heard the most about.

A consolidation loan is a form of borrowing that is used to repay all of your existing creditors leaving you with only one repayment to make each month – making it easier to manage your finances.

In many cases you will benefit from reduced monthly payments, however, should you decide to reduce the amount you pay each month you could find yourself having to pay back larger amount in total. It’s also worth noting that consolidation loans are often secured against your home, so think carefully before signing up and ensure that you can afford the repayments.

debt solutions

IVA

An IVA, or Individual Voluntary Arrangement as it is also known, is a formal agreement between you and your creditors that is used to set out a timetable to repay your debt.

By registering for an IVA you will find that any interest or charges that you’re paying on your debts will be frozen. Also, a portion of your debt could be written off after five years.

Although there are many benefits to an IVA there are also drawbacks to consider. Firstly, your name will be entered on a public register and you will not be able to obtain further credit during the course of the IVA.

There are also strict guidelines you must adhere to during the course of an IVA and you may be required to remortgage your property.

Debt Management Plan

A debt management plan is relatively similar to an IVA although it is an informal agreement between you and your creditors and so can be setup quicker than an IVA.

With a debt management plan you will need to register with a financial provider who will negotiate with your creditors on your behalf and distribute payments each month. By opting for a debt management plan you will only be required to make a single, affordable payment each month, allowing you to regain control of your finances.

Whatever debt solution you opt for it’s important that you’re aware of every possible option available to you, included those that aren’t mentioned here. Although it can be difficult deciding exactly how to proceed, the best option is often to speak to an expert who can guide you through the process of finding a suitable solution.




Compounding interest

Most people don’t think too much about interest rates. They know that they are a number and the know that a lower one is better than a higher one, but they don’t take the time to think about what they really mean, or what the impact of them is on your finances. Our loans and credit cards all have interest rates attached to them and a small difference in the rates can make a huge difference in the cost of the debt over its term.

First, it is probably important to understand what compound interest is exactly. The opposite of compound interest is simple interest. With simple interest if I started with $100 and an interest rate of 10% I would get $10 in interest after one year and an additional $10 for each year after that. Compound interest works differently. I would still get $10 the first year, so I would end the first year with a total of $110. The second year I would get 10% of that $110 or $11, leaving me with $121. The third year I would get 10% of that amount, leaving me with $133.10, and so on. So after three years with simple interest I would have $130, but with compound interest I have $3.10 more. Every loan and credit card is calculated using compound interest.

Compound-interest

To begin to understand the power of compounding interest, let’s take a look at two simple examples. Let’s we have a credit card balance of $10,000 at an interest rate of 8% and for some reason we don’t pay it for 5 years (This is, of course, a really bad idea). At the end of 5 years, the new balance would be $14,693. In other words we have built up an additional $4,693 in interest. Now let’s use the same example again, except for a 9% interest rate. This small change in interest rate makes the new balance $15,386, for a difference of $693 over the lower interest rate. That might not seem like much, but a mere 1% difference in interest rate over 5 years added an additional 7% to the original balance. That can really add up.

For a more extreme example, let’s compare 5% to 10% interest using the same example as above. 5% interest over 5 years would leave us with a balance of $12,763. Doubling the interest rate to 10% creates a balance of $16,105. Doubling the interest rate leads to considerably more than a doubling of interest.

By understanding interest rates and considering it when you are shopping for loans or credit cards you can save yourself literally thousands of dollars.




Pensions

Pension rules and regulations are quite complex. Below we have provided an outline of some of the main rules. However, we recommend that you seek professional advice from a Pensions expert prior to acting on any of the information contained below.

Pensions

Pensions are the most commonly used method of saving for your retirement. By making regular contributions into a pensions fund from your wages, you can be guaranteed a regular income after your retirement.

Pensions are also a very tax efficient method of saving, since the contributions you make into the fund are not taxable, and the growth of the pensions fund is also tax free, unlike investments in shares, or cash deposits.

Contribution Limits

Individuals without relevant earnings (salary) can pay up to £3,600 per annum into their pensions funds and receive tax relief. Employed and self employed individuals with relevant earnings can pay up to £3,600 or 100% of earnings if greater, subject to the overall annual allowance. Details of what constitutes relevant earnings can be found at www.hmrc.gov.uk

Employers can make unrestricted contributions provided the total of employee and employer contributions do not exceed the annual allowance.

Annual Allowance

The Annual Allowance is an annual limit set by HMRC. Contributions paid in excess of this amount are unlimited but will give rise to a tax charge on the pension scheme member.

The Annual Allowance for the tax year 2013/14 is £50,000, inclusive of your own contribution and any other amounts paid into an approved pension scheme. The Annual Allowance increases each year.

Lifetime Allowance (LTA)

The Lifetime Allowance is the total value of all your pension funds, including personal and work-related pensions, but not including any state pension, which you can build up without paying extra tax. The LTA is not a limit on the value of your pension, it is a limit on the amount of tax-relieved pension saving that you can have. So, while there is no limit to the size of your pension, you may be required to pay extra tax if it is worth more than the Lifetime Allowance.

Most people will not reach the Lifetime Allowance, and will therefore be unaffected by this rule.

The value of the Lifetime Allowance increases each year, for example in 2007-08, the Lifetime Allowance was £1.6m, in 2008-09 it was £1.65m, in 2009-10 it is £1.75m, and in 2010-11 it will be £1.8m.

Tax Free Cash Lump Sum

Many people are aware that they will receive a tax free lump sum when they take their pension. The lump sum is typically 25% of the whole fund value. For example, if their pension fund is worth £200,000, then they could receive a tax free lump sum of £50,000.

Changes to the pension rules in April 2006 make it easier for people to take the lump sum from their pension now, while leaving the rest of the pension in place to take when they retire.

If you are aged between 50 and 75, then you may wish to consider releasing a tax-free lump sum from your pension.  See our Pensions Release section. Please note, your pension is a very valuable asset aimed at providing you with an income when you are no longer working. Once a decision is made to take the benefit from your pension, it is irreversible. We would advise you only to take a lump sum from your pension if it can be used to make a permanent change to your financial circumstances. New cars and holidays may sound attractive, but we would ask you to consider the longer term impact to your lifestyle if you were to use the benefit for such a purchase.

Minimum Retirement Age

The minimum retirement age will be increased from 50 to 55 from 6th April 2010.

Triviality

If the value of your pension fund is below a certain level, it may be possible to cash in the pension fund, and receive a cash lump sum.  This right was brought in from 6 April 2006.  However, this option is only available where the total of all your pension funds does not exceed 1% of the Lifetime Allowance. For the tax year 2009/10, this will equates to £17,500.

Help & Advice

There are many different options to consider when choosing a personal pension and it makes sense to take advice from a qualified pension specialist who is independent and can offer you products and services from the whole of the market place.



Purchase Life Annuities

It is also possible to purchase an annuity from funds that did not originate from a pension fund. These are known as Purchased Life Annuities, and work in much the same way as an annuity from a pension, but with one notable and extremely beneficial difference.

Under pension rules the annuity you receive from a pension fund is treated as taxable income in the same way as income from normal employment would be. However if you use other monies to buy a Purchased Life Annuity, the tax treatment is different.

Some of the income received is treated as capital which is not taxed, and therefore the tax burden is reduced. The example below (based on a 65 year old male, basic rate tax payer with £100,000) illustrates the point:

  1. Pension Annuity – Gross Income = £7,370, Tax = £1,621, Net Income = £5,749
  2. Purchased Life Annuity – Gross Income = £7,370, Tax = £367, Net Income = £7,003.

The illustration assumes that both annuities have the same gross income payable.

This therefore raises the question of whether you should always exercise your option of taking tax free cash from your pension funds, even if you intend to purchase an annuity?

You should ensure that the equivalent pension annuity and purchased life annuity rates are the same, and if they are then it makes sense to withdraw your tax free cash entitlement and use a purchased life annuity, as in the above example the net benefit is over £100 per month.

Specialist can assist you in making this decision and would be happy to provide comparative illustrations.




A Necessary Step

So you have finally gone for that equity release scheme which has enabled you to buy a second home in France and you have even found the property of your dreams. The buying process is slightly different in France in many aspects, but one interesting point is that many buyers complete the process without a proper structural survey taking place.

A survey is optional and as it is fairly expensive, adding to the overall cost of buying a new property, many people choose to skip it altogether. The important thing to consider is that skipping the survey is something that may be very detrimental to the buying process.

equity release scheme

It happens often enough in the UK that the survey throws up some unexpected problem which makes you think twice about buying or means that you have to go for a reduction in price. with this in mind, buying property ‘blind’ in France seems somewhat foolhardy.

If you cannot speak French there are registered chartered surveyors who are English or who speak very good English available to you. This means that you will really know what you are taking on with the property and should not have any nasty surprises further down the line.

When you compare the cost of a property survey on the new home you are considering buying, it actually works out to be a small fraction of the purchase price. And by ensuring that the property is legal and sound in terms of structure, you could save thousands in unexpected bills.




How to Budget

Budgeting can feel a bit like pulling teeth – painful but necessary. To avoid that slippery slope into debt, it is best to become the master of your own finances. It’s easy to look away – out of sight, out of mind – but take control now, and make room for guilt-free treats!

Step One: Determine Your Income and Expenditure

It’s a simple equation: if your expenditure exceeds your income, you’re in trouble. If you list your expenditures you can compartmentalise them into two categories: necessary and unnecessary. For example, TV license (unnecessary), water bill (necessary). Once you know what you don’t need, you can start making reductions in luxuries.

Step Two: Save

A great idea is to set up an emergency savings fund. Even if you contribute only £10 of your salary a week to this account, the saving will put you in a great position to accommodate surprise expenses that you’d otherwise have to charge to a credit card you can’t afford to pay off. Slowly increase your weekly savings amount, until you have a nice nest egg.

Budgeting

Step Three: Set Financial Goals and Reward Yourself

This may be: ‘I will reach my £1,000 target in my emergency fund account.’ Once you meet these targets, don’t be afraid to reward yourself for your hard work. Hopefully, with enough budget adjustment, you’ll be left with enough spending money to still enjoy nights out or treats.

Step Four: Make Lists

List your outgoings; all the things you need to pay for, however small. Keep a spending journal, and enter your expenditure every day. Use whatever software is available to you to draw up a budget chart. If your computer doesn’t have any, a good old excel sheet works wonders.

Step Five: Forget Windfalls

Windfalls like end-of-year bonuses are not to be relied on. Gamble on windfalls, and you may find that they are nothing but a puff of smoke.

Step Six: Take Out Money

Your budget should tell you how much money you need to take out every week. Keep this safe in your house, and don’t run back to the ATM as soon as you run out. This will help you stay under budget. (more…)




The Right Debt Settlement Company Will Help You

“Debt” is a word which by itself has the power to reduce a person to a wreck. The heart beats faster and a cold hand of dread clutches the heart, the forehead creases with worry and tension as the person remembers the amount of debt outstanding in his name.

In India suicides for outstanding debt are a very common thing especially among the farming community. Be it India or U.S.A or the U.K creditors are one of the worst nightmare of most people. There is a new industry in place that intends to help out such people. “Debt Settlement” is a method in which you try to settle down your debts for a lower amount than that you had originally borrowed.

Debt Settlement

Usually unsecured debt (i.e. the debt that is not against any property like the credit card bills or mortgage loans etc) is what is covered under this system. It is a win-win situation for both parties involved in the transaction. The creditor is able to get back some part of the money he had loaned out and the debtor is able to clear his debt for a lower amount of money and be free from his creditors.

Debt settlement is not a new concept in the world and has in fact been in place from the time that the system of giving money as loan started. Earlier the work of debt settlement companies was done by the middle men who would charge a heavy fee for their services. Today also the basic concept has remained the same. (more…)




How Can An Accountant Help With your Offshore Investments

Accountants can make all of the difference when you’re trying to change your personal finance strategy, but a lot of new investors still don’t take advantage of them. Why is this? Well, it’s really straightforward — a lot of people feel that accountants are really only for people that have a lot of money. So if they feel that they are more in terms of the beginner, then they’re not going be able to find the courage to get the help that they need. That’s not something that you want to try to deal with on your own. You want to always make sure that you get the professional help that you need and deserve. Anything less than that is just going to cheat your out of the financial security that you deserve.

So let’s move on to the real question: how can an accountant help you with your offshore investments? Personal offshore investment funds are all over the news, but this isn’t something that newcomers to the world of investing should just rush into. Thankfully, there is a way to take advantage of those powerful funds without getting caught up. You can always go with an accountant’s help because they can match the right fund to your overall financial goals.

You might be thinking about retiring someday, or you just want some extra cash every quarter or every month in order to do cool things with your family. Sometimes when you really like your job, you really don’t want to retire early. it’s going to be up to you to sit down with your family and really plan this out.

Don’t be afraid to share as much as you need to with the accountant. they are licensed for a reason — you have to be able to trust them with very sensitive information. There’s nothing wrong with doing this, and it can help you really move on to a brighter financial life.

Personal finance and credit can get tricky, and you may have other tasks on your list than talking with the accountant. but the good part about a professional like an accountant is that they can look at the bigger picture in order to give you the advice that you deserve. Why not chat them up today? You’ll truly be glad that you did, in the long run!




Debt Consolidation New York: Choosing The Right Debt Consolidation Company

When it comes to debt consolidation, New York residents have plenty of companies to select from. Most of these companies will provide a good amount of help to those that need it. Some are better than others. Some will offer a better opportunity than others will. And, some are not worth the time it takes to fill out the application. Are you worried that you will wind up with the wrong debt consolidation company? You should be. But, you do not have to worry. There are several things that you can do to end up with the best debt consolidation company out there. In fact, that goes double when looking for the right debt consolidation New York company.

Here are some things that you should look for when it comes to a debt consolidation company in New York.

•    The debt consolidation New York company should follow the rules of the land. That is, they should not be allow for debtors to call you during the middle of the night, at work or allow them to harass you. That goes for all of your credit lenders. The state has in place laws to help protect you from this happening. If it does happen to you, work with your attorney to have the matter settled. This is unfair and illegal to do.

•    Consumers provide the best information about any debt consolidation company. Ask others that have used one company or the next the good and the bad about that company. When you are looking for debt consolidation, New York residents are sure to tell you about those that did not do a good job, those that were unfair and those that just plain out worked the best.

•    Use reviews you find online. That includes checking with the Better Business Bureau about the company. Take some time to learn what others online are saying about the debt consolidation company.

•    Make sure that the debt consolidation New York company is bonded and insured in your state. When you do this, you are making sure the company is allowed to provide funds in your state, which can save you a lot of trouble down the road.

•    What are the terms, interest rates and other fees associated with them? Do they offer comparable rates to other companies?

There are plenty of debt consolidation New York companies out there. Most will offer you a wide range of benefits to consider. Take your time. Select the company that fits the profile the best. You will work through your debt then best here.




Tax Refund Time Is Here Again, and the Financial Advice Is Here, Too!

Tax refund time is a great time to really dig down and look at your finances, but a lot of people don’t do it. We’re not casting blame here, really. In fact, it can be hard to be the voice of financial responsibility when just about every company in business today will be running some type of tax sale that you need to check out. This is when all of the big items go on sale as well. It’s hard to really pass up a cheap flatscreen or the latest and greatest washer and dryer when you know that you have the money. You know that. But if you’re struggling to make ends meet, it can feel like you’re always torn between what you should do and what you know that you must do.

Let’s ease your mind for a minute: there’s no reason that you can’t do both. You might not be able to get every last thing that you want, but you can still go out of your way to really make sure that you can get some things that you wouldn’t normally buy. Even if it’s just one really over the top nice meal at home, that can be rewarding. Remember that it really is your money, to a bonus — this is just money that you gave the IRS for a year and they have to pay it back to you. It’s an overpayment, nothing more than that. There’s no need to feel lucky.

Tax Refund Time

Having a plan before the refund hits can make it harder to blow your refund on frivolous purchases. Think about everything that you want, and then see if you really want it. Yeah, it’s cool to an advertisement for a really good sale, but what about if you could just jumpstart paying off some of those high interest credit cards? That would really be the best feeling of the world to really step back and be able to pay for the real things that matter. It’s tempting to just skip over all of this and plunge into something else, but you don’t want to do that. You don’t want to just seek pleasure when you’re in debt, because debt has a way of growing very, very quickly.

All things considered, now is definitely the right time to start thinking about getting out of debt. We always tell people not to just throw everything into the debt pool because they’re going to feel unsatisfied. And when you feel unsatisfied, you have a tendency to want to spend even more money. So sometimes the best thing that you can do is give in to some of your wants.

When it comes to the needs side, we think that thinking about setting up an emergency fund is a really, really good thing. Now is not the time to think that you can just sit back and wait for an emergency to happen — even if nothing has happened yet, you never know. The future is very uncertain, and it can often take a little emergency to really derail your finances.

The best thing that you can do right here, right now, is to make sure that you focus on the goals that you have for your life. Remember — nobody is going to want your dreams more than you, so keep that in mind and fight well! Good luck out there!