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Debt Solutions Southwest Ltd is regulated by the Ministry of Justice in respect of regulated claims management activities. Its registrations is recorded on the website www.claimsregulation.gov.uk

Debt Solutions Southwest Ltd is fully licensed by the Office of Fair Trading to provide debt management and credit broking advice.

Debt Solutions Southwest Ltd is a debt management business based in the South West of England, providing a full debt management and credit advisory service to individuals and businesses.

FINANCING YOUR BUSINESS THE WRONG WAY


Is debt better than equity?


The business text books tell us that, sometimes, debt is better than equity. What they mean is that owing the bank money could be better than having to share your hard-earned profits with partners or fellow shareholders. But, even if you subscribe to this view, there is still good debt and bad debt.

Good debt is considered to have two features:

1. It is used for investment rather than consumption
2. It is borrowed at reasonable business rates

On this definition, good debt would include borrowing to purchase your business premises through a bank mortgage, or for business plant and equipment through a bank loan or lease.


The ‘debt trap’


However, how many of you have succumbed to the ultimate in bad debt, namely funding your personal expenses through credit cards? You know how it is, the business has been going badly, you have exceeded your overdraft limit, the bank will not extend your facility, you have bills to pay and children to feed. So, you borrow on your personal credit card at exorbitant rates. Perhaps, you find it difficult to pay the minimum monthly amount on the card, so you take out another card to help you pay. And so on, and so on ….

This is, of course, a recipe for financial disaster. A downward spiral, known as the ‘debt trap’, that you may never get out of. However, help could be at hand in several ways.


How do you get help?




Some solutions


There are some well-tried ways to get out of debt. One is the consolidation route where you replace your high-interest credit card debts with one lower-interest loan, hoping to save on interest payments and charges over time. However, in today’s conservative financial climate it might be difficult to borrow at a rate that makes these savings possible, particularly if you are a sub-prime risk and have no real estate collateral and when one takes into account the upfront borrowing and advisor fees.

Another way is to enter into a debt management plan. Here your advisor assists you in entering into an arrangement where you pay each of your creditors a very small amount each month (sometimes as little as £2.00) over a very long time to keep them quiet. Creditors will agree to freeze interest and charges while you are paying, but there are four obvious drawbacks with these arrangements, namely:

• The arrangements are informal, which means the creditors can withdraw and demand full payment at any time

• The advisor’s monthly management fees can be higher than the total amount you pay your creditors

• The credits will often only agree to the minimum payment schedule for a short period (typically six months) and expect you to increase your payments after that

• The payments are so small that they make no significant dent in the amount owing, even after several years

 

Challenging enforceability: A bolder way


But, there is a bolder way to tackle your personal debts. Because of the casual way lenders and, in particular, credit card companies have documented their credit agreements, many pre-April 2007 credit agreements could be unenforceable against you. This means that you can challenge the enforceability of the agreement, which could result in the debt being completely wiped out or, at least, settled for a greatly reduced sum.

If you want to know more, contact us for an obligation-free discussion.