In today’s society, it is incredibly easy to slip up and find yourself in debt. This is because most people don’t earn enough to buy everything they want outright; they have to rely on loans or credit cards. High-interest rates and a missed payment or two, and suddenly the debt has snowballed. It can be daunting, and it is easy to feel overwhelmed by your debts which is why we have put together this practical guide to help you. So, let’s dive in.
Understand the Extent of the Debt
This is the very first step in tackling your debts; you need to know exactly how much you owe and who you owe it to. Ideally, you will have kept records of your different debts, but not everyone does this. If you haven’t kept records, you can go through old bank statements to add up your monthly direct debits, dig out letters, agreements, or check your online banking. To this figure, you should add any money you owe to your friends and family, any credit card debt, or arrears in bills.
Create a list of the companies that you are in debt to, when the debt started and how much it is for. Putting together all of this information can be scary, but it is really important. Seeing the full extent of your debts can be a lot to take in. However, having a concrete number gives you something to work towards and often, putting a number on the issue can lessen your anxiety.
Build Yourself a Budget
The next step is to use your financial commitments and your income to build your budget. Most bills are billed on a monthly basis, so your budget should also be monthly to account for this. Include all expenditures. Once you have made your budget, you should have a better view of whether or not your income is enough to cover all of your monthly repayments.
You might find that your income falls short, in which case you will need to come up with ways to make extra money. For example, you could take on a second job if you have the time to. You could also sell some of your old or unwanted items. If your debts are not that big, but there’s a lot of them, you could also consider taking out a payday loan. You could pay off one or several of your debts and replace them with one monthly repayment to the payday loan company. For example, Payday UK offers loans with repayment periods from three to thirty-six months. The interest rate is also affordable, and it may even be lower than that of the debts you are using it to pay it off.
Sort Through & Prioritise Debts
The fact is that some debts can be more trouble than others. Identify them; they might be your highest debts or your debts with the highest interest rates. These should be dealt with first. If you have a limited income, then direct it towards these debts first. Some debts carry serious consequences like rent or mortgage arrears which could lead to you losing your home. If you have any goods on finance, these debts should also take precedent as they can be seized or taken back. Leave the debts which have less severe consequences or lower interest rates.
Contact the Creditors
Opening the lines of communication with your creditors can help you to curry favour. If you miss a repayment or if you constantly find yourself struggling to meet them, then it could be worth contacting them. You might be able to renegotiate the size of your repayments or buy yourself some time. You could create a summary budget which you can submit to them to show that your offer is more reasonable and affordable for you and your current financial situation.
Some creditors will appreciate your proactive approach and agree to your terms. Even if you call them up, you should always ask for some form of correspondence, either a letter or email, for your records. These may come in handy if the creditor decides to renege on the deal. Check whether the law is on your side too. If the debt is old and lapsed, your creditor only usually has around six years to take you to court; after this time, they might not be able to force you to pay up. However, if your debt is under or close to this time frame, then they may decide to restart this time limit.
Don’t Be Afraid to Get Help
Dealing with debt is not easy; there are a lot of nuances within the area and a lot of hard-to-understand financial jargon thrown around. However, if you are struggling, then there are a lot of organisations which you could consider going to for help. For example, there is the National Debtline, the Debt Advice Foundation or Citizens Advice. Some resources do cost to access, but there are charities out there too which offer free advice.
If you need to take some time to reassess your debts and come up with a plan, then you could use the government’s debt respite scheme. This gives you a sixty-day window where your debts are effectively paused. The creditors are not allowed to add any more interest or fees, and they cannot seek enforcement action against you. There are some eligibility checks to pass before you can qualify for this, and if you can afford to do so, you also have to continue to make repayments.
Look Up Formal Solutions
If your debts continue to overwhelm you both mentally and financially, it might be time to consider using a formal debt solution. However, you should always get some advice before you commit to doing so, as often there will be long-lasting consequences to doing so.
You could take out a consolidation loan. This is where all of your debts are taken over by another company. They pay off your debts for you with a loan, and then you make your repayments to them instead. It is often easier because instead of lots of repayments, you only have one. However, the interest rate may be higher.
Next, if you owe less than £30,000, you aren’t a homeowner, and you don’t have substantial assets or income, then you might qualify for a debt relief order. It costs £90 and lasts for a year; during this time, your creditors cannot force you to pay unless your financial situation improves. After the year is up, the debts are often written off. However, this does affect your credit score, and it stays on your credit record for six years.
An individual voluntary arrangement could be another option for you. It is an agreement to pay off your debts in repayments that you can reasonably afford over a specific time period. The repayments go to an insolvency practitioner who distributes it to the creditors on your behalf. The practitioner charges a fee, and all of your creditors have to agree to this.
Finally, if you owe less than £5,000 total and you have a county court judgement against you, then you could consider an administration order. Every month you pay a pre-agreed amount to the court, who then shares it out to your creditors as needed.
Addressing your debts requires you to be proactive. There are a lot of options and resources available to you that can help you with your debts. You just need to be proactive in accessing them. Your debts don’t need to overwhelm you; they don’t have to be scary. Hopefully, the above information will help you when it comes to tackling your debts.