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Debt relief orders financial crisis reaches younger generation

by Jim ONeil on January 3, 2012

in Personal Finance News

It seems no one in the UK is protected from financial difficulties. Recently revealed data indicates that the younger generation is facing the same miserable financial situation as their older counterparts.

According to official figures, more UK residents age 25 to 34 are resorting to Debt Relief Orders (DROs) for insolvency than any other age bracket.

A DRO is a new alternative to bankruptcy, designed for people with low incomes and few assets. It is cheaper, easier, and faster than bankruptcy and does not involve a court process.

During the one year coverage period, the individual is not required to make payments to included creditors and those creditors cannot take action against the individual.

This excludes creditors involved with student loans, child support, confiscation orders, and court fines. After one year has passed, the debts included in the DRO are forgiven and need not be repaid.

To qualify for a DRO, an individual must have qualifying debts totaling under £15,000, less than £300 worth of assets, a monthly disposable income under £50, and not be a homeowner.

If a vehicle is owned, it must be valued under £1,000. The person many not have had an existing Bankruptcy Order, Debt Relief Order, Bankruptcy Restrictions Order, or an Individual Voluntary Arrangement within the previous six years.

Debt Relief Orders went into effect in Wales and England in April 2009. Since that time, one in four people using them have been between the ages of 25 and 34.

The Insolvency Service has implemented a campaign entitled “Dealing With Your Debt” that encourages residents to take a proactive approach to debt.

Debt advice charities like the Consumer Credit Counseling Service and Citizens Advice Bureau are supporting the campaign.

Between loans, credit cards, and cash advances, many members of the younger generation are finding themselves in debt. The government and these charities encourage them to seek assistance from debt counselors to consolidate outstanding balances and establish a repayment plan.

These agencies also warm about the dangers of high interest financing like payday loans. Consumers should instead use cheap loans like those offered by banks and building societies.

Debt advice agencies can help people find the loans cheapest for them based on credit score and financial status.

Joanna Elson is the chief executive of Money Advice Trust, another debt advice charity that supports the government campaign. She commented that the financial picture is “bleaker” for the 25 to 34 years olds of today.

While their parents were purchasing a first home, establishing a pension, and saving money for their future at this age, today’s youth are struggling financially and are nowhere near this comfortable position.

Ms. Elson noted that free assistance is available to members of the younger generation who are struggling with debt. These services can make a huge difference, even helping consumers get out of the private rental market trap that is proving to be very expensive.

By taking a proactive approach to debt, 25 to 34 year olds can prevent themselves from becoming one of the 44,000 people with a DRO.

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