Debt Advice
November 28, 2008
More often than not, it happens to people who suffer an unexpected drop in income. So, despite your best-laid plans, events such as illness, bereavement or a relationship breakdown can all lead to unmanageable debt. Whatever the cause, debts can get out of hand fast and make life miserable.
But don’t panic – The first thing is to keep up to date with the latest economic an financial news, you can escape your debt problems, provided you face up to the situation and act quickly. Get Debt Advice to Spot the Danger Signs. When your outgoings are greater than your income, you are heading for trouble.To check your budget, ask yourself the following questions. Are you:
* Juggling your bills each month because you can’t afford to pay them all?
* Usually left with no money at the end of the month?
* Using an increasing amount of income to pay off debt?
* Up to two months behind with some credit payments?
* Near the credit limit on your credit and store cards?
* Only making the minimum repayments on credit cards?
* Missing credit payments?
* Frequently borrowing money from family, friends or colleagues?
* Using credit to buy items you used to buy with cash?
* Regularly overdrawn on your current account?
* Not sure of your level of debt or borrowing?
If the answer is “yes” to three or more of the above questions, you could be in financial difficulties. Take steps now to sort out your budget, payment priorities and credit obligations. Don’t leave things to get worse.
Debt Advice to Clear your Debts
Draw up a personal budget. First add up the money you get in each month – that’s your salary and any other regular income. Don’t include any money you can’t rely on. Then, list and add up your monthly outgoings including regular bills such as mortgage or rent, insurance policies and utilities, food, household, clothes, entertainment and transport costs plus extras like hairdressing and newspapers. Add on an additional monthly sum to cover occasional costs such as holidays and car repairs.
Be honest with your debt advice counsellor – declare all your debts, income and expenditure and don’t underestimate or exaggerate your expenses. To see where you stand, subtract your outgoings from your income. What’s left is what you can afford to share among the people you owe money to – your creditors. If your expenses are more than your income, your counsellor will help you claim all the state benefits to which you are entitled. You’ll also need to think about cutting down on inessential spending and perhaps finding ways to generate more income. Using all this information, your adviser will help you draw up a financial statement that can be presented to creditors and courts, if necessary.
Tackle your priority debts first. Those which could have the most serious consequences if you don’t act fast such as your mortgage or rent arrears should be top of your list because you are in danger of losing the roof over your head. Then deal with secured loans, council tax, utility bills and any unpaid fines or maintenance payments. Last come non-priority debts like store cards and personal bank loans.
Contact all your creditors as soon as possible to explain your situation. Show them your financial statement incorporating your personal budget and list of debt arrears and negotiate a new repayment plan. Offer to pay them whatever regular sums you can afford, however small. Creditors usually prefer to freeze further interest and accept repayments over a longer period, rather than go to court and risk ending up with less or nothing. Don’t bluff – if you make an offer, make sure you can do what you have promised. You should start making payments as soon as you have fixed on a repayment plan. This will encourage creditors to accept your proposals. Where possible, set up direct debits or standing orders to help you stick to your side of the deal.
Think twice about borrowing more money to pay off your debts. These sorts of roll-up or ‘consolidation’ loans, often secured on your home, can be expensive and can put your home at greater risk. Though the monthly installments may be lower, you will have to pay them for far longer than your present loans so the deal ends up costing more in the long run.
Don’t ignore any court summonses you receive. Fill in court papers and attend hearings. Whatever a creditor tells you, you can only be taken to a civil court and won’t be prosecuted in a criminal court for unpaid debts.
Keep in regular contact with creditors, read up on the latest debt advice websites. Answer all creditors’ letters and phone calls. If you promise to return a call, make sure you contact them before they have to contact you again.
Keep records of correspondence. Make a note of every telephone conversation with the date, time and name of the person you spoke to and keep copies of all letters and emails. Though creditors are allowed to remind you if you miss repayments, they are not allowed to harass you by improper methods. They can’t repeatedly call you at night, contact your employer or park a van marked ‘debt collector’ outside your home, for example. If they do, tell your local trading standards department or the police.
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