11 January 2008
Britons whose spending on credit through personal loans and cards has become unsustainable will be taking on debt management plans in increasing numbers, Thomas Charles & Co said yesterday.
Currently, those caught in spiralling debt have three options: debt management, declaring bankruptcy or taking out an Individual Voluntary Arrangement (IVA) from a bank.
However, an expert at the debt counsellors said that banks were tightening up their critieria for accepting IVAs - an arrangement whereby people lighten their debts with creditors - in the wake of the credit crunch.
This in turn will result in debt management's rising popularity, Director at Thomas Charles, James Falla, said.
He explained: "From the bank's point of view, their objective is to get their money back, so their objective is not to solve the debt problem as soon as possible but to get as much of their money back as possible.
"They are more than happy for somebody to do a debt management plan if it takes ten years to pay the money back: the alternative to them is this person declaring themselves bankrupt, in which case the return could be as little as ten per cent.
"Or doing an IVA, where the return is going to be 40 or 50 per cent."
The average UK debtor has over £56,000 left to repay, including mortgage payments, Credit Action has said.
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