Will a Trust Deed affect my credit rating?
If you're struggling to stay on top of your unsecured debts (and you can't see yourself being able to repay them in a reasonable amount of time) you might be eligible for a Scottish Trust Deed. It could help you make manageable monthly repayments - and write off your remaining unsecured debt after four years. To qualify for a Trust Deed you must have at least £5,000 worth of unsecured debts, or £10,000 worth if they are joint debts.
Having said that, there are disadvantages. A Trust Deed will damage your credit rating for six years. This will make it more difficult (and/or more expensive) to get credit in that time. Your ability to access credit during your Trust Deed will also be limited and any new unsecured debt you acquire will not be added to your Trust Deed - you'll have to pay it off separately.
It's important to remember, however, that if you kept on missing payments to your unsecured debts without seeking expert advice, this would also damage your credit rating - and you wouldn't be taking steps to tackle your debt problems.
How can a Trust Deed help?
One of the biggest advantages of a Trust Deed is the fact that any remaining unsecured debt will be written off after four years - as long as you keep up with your payments. This can obviously help people who couldn't otherwise see a way of clearing their unsecured debts in the foreseeable future. Knowing a definitive date when you will be free of that debt (as long as you make the payments) can be very reassuring.
Another way a Trust Deed could help is that it will reduce your monthly repayments to a level you can afford. This will be worked out by looking at how much money you have left over after all your essential costs and bills - like food, clothes and petrol - have been taken care of. This way, you can make more manageable monthly unsecured debt repayments that don't get in the way of your essential spending.
If at least half of your lenders, who hold at least a third of your unsecured debt, agree to your Trust Deed, it will become protected, offering you protection against legal action from your unsecured lenders as long as you stick to your side of the agreement. They will no longer be able to take you to court, ask for higher payments or threaten to make you bankrupt.
What else is there to think about?
A Trust Deed can really help with unsecured debts, but it's a serious legal process with consequences - so it's only available to those who really need it.
You may be required to release equity in your home during a Trust Deed, for example and, if you can’t, your Trust deed may be extended by 12 months. You'll also have to stick to regular payments, so if you can't guarantee a reliable income a Trust Deed might not be right for you. If you fall behind on your Trust Deed payments, your lenders may make you bankrupt.
If you're having unsecured debt problems, it's best to seek help and advice early on instead of struggling and giving them time to get worse. Fill out our debt solution finder and a friendly debt expert will phone you back to discuss what could be right for you.
Article Updated 12/12/2013