I am renting and have debt problems: what is the best debt solution for me?

If you living in rented accommodation, dealing with a debt problem may seem difficult because you have no equity in your property which could be used to offset what you owe. However, not owning a property may actually work to your advantage.

Over the past few years, when homeowners have struggled to pay unsecured debt, they have been able to release equity from their property.

Equity is used to pay off debts meaning that a homeowner’s overall debt repayments each month are dramatically reduced.

Unfortunately, if you are renting you do not have the opportunity to release equity and consolidate debts. As such, if you have a debt problem you will need to tackle it head on using a debt management solution.

Nevertheless, as we will see, this can have significant advantages.

Three possible solutions

There are three debt management solutions available in England, Wales and Northern Ireland.

The first is known as a debt management plan (DMP). This is an agreement with all of your creditors to reduce the amount you owe to fit within a budget that you can afford.

Generally speaking if you use a DMP, it makes no difference whether you are renting or are a home owner. The basis of the plan is that you must still repay everything that you owe but you do over a much longer period of time.

The second solution which you can consider is an individual voluntary arrangement (IVA).

An IVA involves you paying as much of your debt as possible over a fixed period of five years. After this any unpaid debt is written off and you are free to move on with your life debt free.

When renting your home cannot be affected

As a homeowner, the downside of an IVA is that you have to agree to release equity from your property to increase the amount you pay back to your creditors.

If you are renting, there is no such obligation and your home is not involved.

Once you have started an IVA, unlike a debt management plan your creditors must stop all interest and late payment charges. They are unable to take any further legal action against you and because debt is written off, the IVA gives you light at the end of the tunnel.

As such, if you are renting there is really very little reason why you would not consider an IVA over a DMP.

The third solution is called bankruptcy. Bankruptcy is often seen as something to be avoided at all costs. However, if you are renting, it may offer you some very real advantages.

As a tenant, your home is not involved and under normal circumstances, you will have no problem remaining in your property and you will be able to keep all of your household goods.

In contrast, a homeowner would be at risk of losing their house if they declared bankruptcy.

Right solution also determined by other factors

As a tenant, if your objective is to get out of debt as quickly as possible, bankruptcy could be a very good solution. You are only asked to pay towards your debt if you can afford to do so and even then only for a total of three years.

It is very important to understand that choosing the right debt solution does not just depend on whether you are a homeowner or not.

Things such as the amount of debt you have, your job and your attitude to repaying your debt will all need to be taken into account.

However, if you are renting and find that you have a debt problem, it is very unlikely that you will lose your house. For this reason you may well be able to take advantage of solutions such as an IVA or bankruptcy where a homeowner would want to avoid them.

If you are struggling with debt, visit www.BeatMyDebt.com

Our vibrant forum gives free access to industry experts and others who have suffered with debt problems.

Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.

---