Different Types of Debt Solutions

There are many types of debt solutions that an individual in debt can use to get his or  her finances back to track. Many people find it difficult to comfortably go on with life especially when they have large debts, and unfortunately, many struggle for so many years without ever seeing the end. This is so since they are not informed about the many options available to help them.


The most common types of debt solution mechanism are debt settlement and consolidation. Other options include bankruptcy, IVA-individual voluntary agreement, debts arrangement schemes, pension transfers, life insurance and sequestration. These options are discussed below.

Debt Management

This option mainly deals with the understanding of debts, implementing them and staying out of them afterwards. It involves developing budgets, sticking to the budget and participating in credit counselling sessions. The counselling services can also offer solutions which reduce high interest rates, eliminating the over limit fees and getting rid of the debt faster than one would have done on their own.


  • Offer organized principle repayment plans such that you loan is paid much more faster.
  • You benefit from lower interest rates
  • You save time and money, and your credit rating can also improve.
  • Cons
  • Your creditors can remove you from the repayment program if you miss or make late payments.
  • Only applicable to debts that even after being restructured, can still be cleared within 60 months if done with an IVA.

Debt Settlement

This is one of the several solutions to settle debts used for those who are in serious financial troubles, and do not have a likely chance to pay it off. However, this type of solution can have an adverse effect on an individual's credit, thus one may find it too stressful. This approach of solving debts, works based on negotiations and there is no surety that all the amount will be written off.


  • It may have a negative impact on your credit score, but this impact would not be great as filing for bankruptcy.
  • A cost effective mechanism of settling your debts, since you won't be required to pay the total principle amount.
  • Cons
  • You will have to pay tax on all the debts forgiven
  • Your creditors would not negotiate with you, unless your accounts are at least 3-4 months delinquent.

Scottish Trust Deeds

A Scottish trust deed is a legal agreement where a debtor makes reduced payments over a period of 3 years. At the end of this time, the debts are completely written off, thus making a more suitable alternative for bankruptcy. Such an arrangement is only available in Scotland. Once you sign for the trust deed, the trustee's duty is to collect regular contributions from your income, so as to make regular payments to your creditors. After the trustee notifies all your creditors that you are entering a trustee deed, you will be protected and creditors won't be allowed to contact you.


  • You no longer have to directly deal with your creditors.
  • Irrespective of the number of creditors you have, you will only be required to make one monthly payment to the trustee.
  • It is affordable since payments are set at a level you can comfortably afford.
  • There are no court proceedings involved, as the case with most debt arrangement schemes.


Bankruptcy, also called sequestration, is a process where individuals or business are able to get a fresh start from their financial difficulties. The two common types of bankruptcy are chapter 7 and chapter 13. Chapter 7, which is commonly referred to as liquidation, usually takes four to six months from the day of application. Chapter 13, on the other hand, is more of a debt adjustment scheme.  The loan terms are restructures such that you are able to make your payments in a more comfortable manner and some of the debts may also be written off.


Debts are not the best of things to have. They are sometimes associated with a lot of stress, especially from creditors who want their money back when you have one, it is important to find the right approach to help you clear them. There are different types of debt solutions you can choose, depending on your current and future financial situation.