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While there are many ways to Deal with unsecured debt absent a bankruptcy filing, the following 2 options are the most Frequent:

Debt Consolidation: Debt consolidation is a process whereby lender’s generally agree to decrease interest rates and take a smaller monthly payment to ensure that all creditors can be managed in one payment. The advantage here is obviously a consolidated debt load and decreased interest. The drawback is that in order for this to be an effective instrument, all your creditors must agree to participate or else you might be left having to handle individual creditors away from the consolidation procedure. A number of these consolidation companies are extensions of the credit card companies created to squeeze from you your last few dollars. It’s advised that anyone seeking the help of a debt consolidator who’s not an lawyer, ensure they’re a non-profit organization.

Debt Settlement: Debt settlement is a process where every creditor is contacted separately in an effort to settle the accounts for less that the complete balance. So as to effectively participate in debt settlement, the customer should have access to lump sums of money. Whereas in debt consolidation creditors are paid with monthly payments, with debt settlement, the ideal settlement offers you’ll receive involve lump sum provides. While payment plans here perhaps a choice, they will uniformly need a greater overall proportion of the balance. It’s also advised that your account be delinquent before pursuing this option because if cash has been paid to the creditor on a monthly basis, the less incentive they’ll need to settle. Debt settlement might be a better option than bankruptcy at the scenario where someone would lose substantial property by filing bankruptcy or if there’s income is such that filing bankruptcy would induce them to pay a higher dividend to creditors than the debt might be settled for. The advantage here is that you’re reducing the principal balance of what you owe. The drawback is that your credit will reveal the account was settled for less than the complete balance, which is a derogatory mark on your credit score. Additionally, creditors will issue you a 1099-C in the end of the year for the forgiveness of debt when the sum payable is in excess of $600.00. The debt forgiveness is treated as taxable income requiring that taxes be paid on the forgiven amount. Based on the amount of debt you reduce, the taxes could be significant. It’s recommended that you check with a professional to ascertain whether this is a fantastic match for your current financial situation.