In an economy which relies mostly on a credit system, you cannot help but depend on that tiny plastic card when paying for your purchases. If you're not careful, however, you might find yourself having more debt than your finances can actually handle. What if you find yourself in such a situation? This is when you can go for the option to have your debt written off.
Since our focus here is to determine whether having your debt written off is a good financial decision or not, let us first take a quick look at the process. When your credit card company writes off the debt that you have on your credit account, what they do is report the uncollected amount due as lost income. They usually do this if you fail to make payments for six succeeding months, upon which the account will be turned over to a collections agency.
When this happens, how does this impact you as a creditor? The biggest disadvantage to making this financial decision is that your credit score will be affected negatively. Aside from lowered credit scores, you might be losing some or most of your credit card privileges, and you might get harassed by collections agencies.
Now, consider what will happen once you have your debt written off. In the United States, the process is referred to as debt settlement. In the United Kingdom, the thing that will help you is called an IVA or an Individual Voluntary Agreement.
Just like the debt settlement agreement in the US, UK residents can opt to sign an IVA which is a legally binding debt solution. It helps those who have serious unsecured debts to prevent bankruptcy or property repossession – without having to actually declare bankruptcy.
Perhaps the only disadvantage to having your debt written off is that it is a form of insolvency. As such, it would have a serious effect on your credit rating which typically lasts for about six years from the time that it starts.
Before deciding to have your debt written off, there are several alternatives that you can look into. Here are some of them.
Do not immediately stop making regular payments for your debts – only use it as a last resort after considering all your other options.
Make a general assessment of your financial situation first. If you feel that you can still get by through reduced monthly payments, settle the issue with your credit card company. This way, your credit score will not be affected and you might be allowed to repay some or all of your debt.
Obtain a copy of your credit report. If you have maintained good credit over the years, your credit card company might allow you to negotiate for a lower monthly payment.
At the end of the day, making a decision like having your debt written off and suffering the consequences of it affecting your credit is all about laying out all your options on the table. As long as you are aware of the consequences of writing off your debt, you can slowly but surely be on the way to financial recovery. The best way forward is to seek free advice from a professional company, to find out whether writing off debt is appropriate for you. Approach only reputable companies and make sure you apply to a few of them before deciding.
Find out more about getting debt written off on the author's Debt UK website. K D Garrow has worked as a senior manager with significant financial responsibility for the last twenty years. His website offers free, unbiased advice on a range of debt related issues including how to write off debt, debt management, debt settlement, IVAs, bankruptcy, loans and budgeting.