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The level of domestic debt in the UK is ever increasing. It’s so easy to obtain various forms of borrowing now – loans, hire purchase, credit cards – that many people find themselves up to their eyeballs in debt before they know it. And the larger the debt, the more difficult it is to repay. According to research conducted by the Consumer Credit Counselling Service, 2.7% of people who sought advice from them in 2005 were in debt to the tune of £100,000 or more. It doesn’t help that the average consumer’s general understanding of money and how to handle finances is fairly limited. This means that many people end up making bad financial decisions that serve simply to aggravate their level of debt. For instance, a common mistake made by people in debt is to borrow by other means in order to pay an existing debt – such as taking out a new credit card and using it to repay the balance of an existing one, which often means paying more interest in addition to the interest already accumulated. Such juggling games usually end up creating confusion and the debt becomes too complex for the individual to manage. Furthermore, many individuals who are in debt make matters worse by ignoring the fact that they have a money problem. The best way to get out of debt is to come to terms with it as soon as possible and take positive action to address it. Ignoring it simply delays the inevitable. Payment demands build up and up, as does the interest, and creditors become less and less sympathetic as time goes by with debts still unpaid and no communication from you. If you’re struggling to keep up with your household finances, deal with it before it spirals into a serious problem. Sit down and look at your household income and outgoings, either on a weekly or monthly basis depending on what suits your circumstances best, to identify what (if any) surplus you have to put towards the repayment of your debt(s). Now note down all the people or organisations to whom you owe money. Different debts will have different levels of urgency and you need to distinguish between these. Make two headings – ‘priority’ and ‘non-priority’ debts. Priority debts are those that are critical to basic living and which could result in you facing legal action. It’s more important to sort out your rent or mortgage arrears in order to avoid eviction or repossession of your home than it is to pay your credit card bill. Other priority debts are, for example, utility bills (you need an electricity and/or gas supply), Inland Revenue notices (the penalty for failing to pay taxes can be a prison sentence or bankruptcy) and outstanding child maintenance or local authority tax (which could result in a bailiff visit and seizure of goods from your home). Debts that should be considered non-priority are those that will not result in prosecution, bankruptcy, loss of essential possessions or repossession of your home if you’re a homeowner, such as overdrafts on bank accounts, unsecured loans or credit card bills. Once you have a clear idea of your finances, your budget and your various debts, get in touch with the people or organisations to whom you owe money to inform them of your situation and try to agree on a suitable arrangement to allow you to repay your debt in a manageable way. The sooner you get in touch, the more understanding your creditor is likely to be and the easier it will be to negotiate a reasonable repayment programme. They would much rather that you pay small, regular amounts over a longer period than ignore the debt completely. They will probably charge more interest for paying in this way, but you’re better off doing this than ignoring the problem and facing potentially more serious consequences. Try to keep all your creditors appeased in this way, rather than just focusing all your finances on paying off one particular debt. If you can’t afford to pay every creditor, at least pay your priority creditors. Most importantly, don’t be embarrassed about your debt problem. It can happen to anyone and there are countless other people in the UK who are in the same situation. Help is at hand from many independent advice organisations such as the Consumer Credit Counselling Service and the Citizens Advice Bureau. They provide both written and online guidance and face-to-face and telephone consultations. What’s more, many providers of financial products sell a range of packages to help people repay their debts. Find a provider who can offer you professional financial advice and help you to find a solution that is suitable for your needs. Debt consolidation loans are one option. They allow you to pull together all your debts into one manageable loan with a realistic repayment plan. The main benefit of debt consolidation loans is that they can simplify your financial situation and make your debts easier to manage, as you only need to make one regular payment towards all of your debts. The downside, though, is that the interest rates can be very high and the repayment term can be very long, which could result in you paying well over the odds to clear your debts. Another option is to remortgage your home. It’s rapidly becoming a popular choice among homeowners who need some cash and there are now countless different products available, meaning that you may be able to get a very competitive deal. Furthermore, you don’t necessarily need to have a good credit rating to obtain a remortgage. Some companies specialise in helping people who are having or have previously had trouble with debt and credit scores. Residential property is a real investment, but many homeowners don’t take advantage of the cash available in their homes until they sell. If there is equity in your home (if the value of the property is more than the total amount owed against it), remortgaging should be a quick and easy process for you. Remortgaging can be a good way of raising cash while still living in your property, and people remortgage their property for various reasons – to clear debts, to buy a car or another costly item, to go on a dream holiday or to renovate their home. Remortgaging can be a cheaper way of raising cash than taking out a personal loan. One of the main advantages of remortgaging your home to deal with your debt problems is that you can consolidate your various debts into a single regular repayment – i.e. your monthly mortgage repayment. You can also benefit from lower interest rates as there are some very competitive deals on the remortgaging market, potentially saving you money on both your debt repayment and your mortgage itself. For many people, remortgaging can be a very good way to clear debts and wipe the slate clean financially, allowing them to start afresh in managing their finances effectively. However, it’s important to fully understand what you are doing before you go ahead and make any major financial arrangement such as remortgaging your home. There may be fees or penalties for leaving your existing mortgage. Also, you need to think carefully about whether it is the right solution for you to change your debts from unsecured to secured. All mortgage products are secured against your home, i.e. your home is used by the lender as a guarantee of payment, so if you fail to keep up the terms of the deal, your home could be repossessed. This article is copyright protected and is not for republishing |
