Write Off Debt - Learn About Ways To Write Off Debt

The most common systems used to deal with debt problems tend to be based on debt consolidation. This means either using a debt management plan to reduce and simplify your monthly payments, or paying off your debts with a consolidation loan. These options will only work if you can afford to make the payments necessary to repay your debt in full. They both make it easier for you to make the repayments, but they do not actually reduce the amount that you owe.

When your debts reach a certain point, it can become very difficult or even impossible to find a way of repaying the full amount. If the debts are too large in relation to your available income, you simply cannot afford to pay the amount that would be required each month to pay back your debts in a reasonable time. This is the situation when you need a mechanism to actually write off debt, so that you can get rid of a large chunk of it in order to make it possible to repay the rest.

Thankfully there are a couple of ways you can do this, some of which depend on where you live. I will look at the situation in the US and in the UK separately. In the US, the most widely used system to write off debt is known as debt settlement. This involves using a specialist company to negotiate with your creditors to get their agreement to settling your debts for much less than the full amount.

When you start on a debt settlement program, you immediately stop making any repayments to your creditors. Instead of paying them, you put an equivalent amount into a separate account each month. This is then saved up and used to pay off your creditors in lump sums when settlement agreements are reached.

The negotiators will work with each of your creditors to get agreement to settling your debt in full for a greatly reduced amount. The incentive to do this is that the repayment of the remainder of the debt is usually made in a single, one-off payment. The other incentive, of course, is the prospect that if they do not settle for a reduced amount, they may end up getting nothing at all.

For debt settlement to work you need to be in a very serious situation, otherwise there is less of an incentive for the creditors to do a deal. If you can show them that your circumstances are so bad that you really cannot afford to repay the full amount, and that bankruptcy is a real possibility, they are much more likely to settle for something rather than nothing. It is quite common for negotiators to get agreement to write off 50% or more of your total debt.

In the UK, there are specialist companies that can help you write off debt, but they do not tend to engage in debt settlement as such. There is another system unique to the UK, called an IVA, or individual voluntary arrangement, which allows you to write off debt in a more structured and certain way.

An IVA is a legal agreement, so is much more formal than a debt management plan. This means that you need to give it very careful thought before entering into it, as it is not so easy to change your mind half way through. What happens is that you make a single affordable payment each month over the term of the IVA and at the end of that period any debt left that has not been repaid is written off. This can result in as much as 70 % of your debts being written off, depending on the circumstances.

An IVA will usually last for five years, so it gives you the certainty of knowing how much you have to pay every month and the date on which you become free from debt again. You do not have to deal with your creditors directly at all with an IVA, as you only make a single payment into the IVA, and your Trustee then has to share it out and deal with any issues the creditors have.

Another advantage of the formal aspect of the IVA is that it is easier to get all your creditors on board, as there is an element of compulsion to the terms. If you can get 75% of your creditors to agree to an IVA, then any others that are not willing will have to sign up too, whether they like it or not. This is much better than a debt management plan, where you are totally dependent on getting the agreement of each creditor.

Wherever you live, the first step towards being able to write off debt is to get expert advice, because each situation is different, and you need to know which route is going to work best for you. Find recommendations for reputable companies and apply to a few different ones, so that you can compare the advice you are given before making a decision.

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