DMP, IVA or Consolidation Loan?

Some 40 per cent of parents have had to help their children out with the repayment of debt according to new research.

Mobile phone bills, car finance, credit card bills and overdrafts all manage to take their burden on at least one in five of students or graduates and sometimes the result can be the need for an IVA, a debt management plan or a debt consolidation loan.

Around a quarter (24 per cent) said that they have helped their children pay off car finance debt and 23 per cent offered their kids cash to deal with unpaid credit car bills.

In total, some 7.5 million parents have helped out their children financially with one in three parents saying they would feel guilty if they were unable to help their children on to the property ladder.

Parents who help their children out of debt are setting themselves up for a fall. Even if they can afford it they are teaching their children bad habits and getting them used to having someone bail them out, or acquiring more debt to finance an existing one.

While the cost of living is increasingly high in the UK at present, so many people, especially young adults, are living a buy-now-pay-later lifestyle leading to debt troubles.

If parents can’t or won’t bail their children out of debt, there are a number of other solutions.

If you have fair, bad or no credit, it is almost impossible to apply and get approved for a major credit card, personal loan or business loan. However, there are a number of easy ways to build and restore your credit history.

Look for programs that can help you to rebuild your credit. There are a number of small banks that will offer you a secured major credit card that would require you to deposit money into their bank.

Use their card, pay on-time and after a period of six months, the bank will return your security deposit and offer you an unsecured credit card. The bank can also report your on-time payments to the credit reporting agencies.

If you have a job, you can always get approved for an auto loan. This is not one of the best ways to build your credit but it’s a start. In order for this option to work, you must always send in your auto payment in before the due date.

Retail store credit cards are a lot easier to get approved for than a major credit card. Most retail store cards will only allow you to use the card in their store. This card will help to rebuild your credit as long as you pay your payments on-time, however it can be risky and a little too tempting to spend money on the card buying things you otherwise wouldn’t. Remember, at the end of the day, store cards are essentially credit cards.

If you have good credit you have a much better chance of getting approved for loans or credit cards as a credit union member. This will also allow you to use someone else as a guarantor if you can not keep up with the payments. 

Figures from Credit Action suggest that consumer debt in the UK reached £1.355 trillion at the end of July 2007. Debt is not something that is easy to get out of and it is absolutely unavoidable. If you need to get into debt to buy something you want but don’t necessarily need it is not worth it. Rather than accepting you need a student loan to live at while at university, consider a part time job and start paying off you overdraft sooner rather than later.

The author of this article is John Smith, who draws on extensive journalistic experience to write on specialist finance matters. 

This article does not represent ‘financial advice’ as each person's individual requirements will be unique to their specific needs. If there is something in the article which you wish to rely on, please check those details with the person/company with whom you arrange financial services or debt management plans.

The views in this article represent those of the author and not those of Netbasic Limited.