SimplyFinance - Debt

Don't Ignore Your Debt

2009-09-01T23:00:00Z

In today's society, debt is a part of everyday life. House prices are at such a level that most people would not be able to buy a house without the aid of a mortgage, and bank overdrafts become a habit for many from their teenage years onwards. However, there is a massive difference between necessary debt (mortgage, student loans) and destructive debt that ties you into paying back the same loan or credit card for years after you first needed the money.

Credit Action, a money education charity, recently found that £181m is paid in interest in the UK each day, and that a property is repossessed every 11.5 minutes. These are worrying figures, indicating a level of personal debt that is becoming increasingly unmanageable. A common reaction to excessive debt is to pretend that everything is fine. However, ignoring the problem will only make it worse. A greater awareness of your financial situation can mean cutting your interest payments in half and avoiding serious repercussions like losing your house.

Face up to the debt

It's easy to get into the habit of spending beyond your means, especially if you spend a lot of time with friends or family members who earn more than you do. However, credit is not bottomless and your creditors will soon lose patience if you continually borrow more than you are able to pay back. It seems obvious, but you have to start by admitting that your debt has become a problem.

Write a list of the people or companies that you owe money to, and work out how much interest you pay to each company per month. The debts with the highest interest rates are the ones that will get you into the most trouble, so these need to be your focus. Also, unwilling as you may be to admit to others that you have debt issues, your lifestyle needs to change immediately. That means no more expensive nights out, new clothes and grocery shopping in Harrods, at least until you're earning enough to afford it.

Don't ignore your post

If you 'forget' to open the bills that come through the letterbox, your creditors are not going to go away. In fact, the pressure on your to make your repayments will only increase, and you will soon be bombarded with telephone calls from debt collection agencies.   Some can be pretty aggressive in their communications, so try and sort something out before it gets to this stage.

Look over your bank statements and work out where cutbacks can be made. Be ruthless and cut any 'luxury' spending such as magazine subscriptions and Sky TV. When you know how much money you have available to start paying off your debts, call everyone on your creditors list. Starting with the ones to whom you owe the highest-interest debts and the ones where you have missed the largest number of payments. Explain that you have been having some financial trouble, but that you want to sort out the situation.   They should respect the fact that you are being proactive, and either agree to freeze your interest or enable you to make manageable payments towards your outstanding debt. If they are unhelpful at first, do keep trying. It might take a couple of phone calls to get through to someone sympathetic.

If communication has broken down completely, you may need to resort to a debt management plan or an Individual Voluntary Agreement (IVA), where a debt specialist liaises between you and your creditors to put together a repayment plan. Do be aware though that both a debt management plan does cost money, so if you are considering this route make sure you also contact a free service such as the Citizens Advice Bureau to find out what services are available to you. Also, the consumer credit counselling service is free to call on 0800 1381111. For Scottish debt solutions, please follow the link.

Keep a record of everything

If you have a large number of creditors, chances are that you will be speaking to a lot of different people. Make sure that you always get a reference number for each call and if possible the name of the person that you have spoken to. When you get letters and phone calls, keep the letters in a file and make a note of the dates, times and content of the phone calls. The reason for doing this is to protect yourself if you should have to go to court.

One way for companies to reclaim money that they are owed is to apply for a county court judgment (CCJ) against you. This means that you will be summoned to your local court and, if you lose the case a judge will order you to pay back the money. This type of judgment is recorded on your credit report for six years, so if it gets to this stage you may have trouble borrowing money in the future ? so do your best to sort out the situation before this happens.

If it seems too good to be true?

Although debt consolidation loans can be a temporary solution to high-interest debt, you should be extremely careful about choosing this option. After all, you are effectively swapping one debt for another. If you do decide to go down this route, you need to commit to making every payment in full and on time. There is one situation where you should consider this option; when you have credit card debt or another type of high interest short-term loan and you are stuck in the 'minimum payment' vicious circle.

Credit cards in particular are happy to let you make a minimum payment each month (usually £5) because you are then paying off the interest and therefore stay in debt much longer.   The longer that you don't pay off any of your balance for, the harder it is to do because the interest mounts up. Therefore, if you are unable to ask family or friends for help and simply do not have the funds to pay off the cards, a longer term loan with a lower interest rate will give you some breathing space, and preserve your credit rating.

Is Debt Affecting Your Relationship?

2010-03-12T00:00:00Z

It seems as though the old adage that 'a problem shared is a problem halved' does not necessarily apply to financial worries. Research carried out by the Financial Services Authority (FSA) showed that 74% of British couples find money the hardest subject to talk about with their partners. So why do we find it so hard to discuss our cash concerns with the ones we love?

Many people in relationships find that broaching the subject of money with their partner ends up causing conflicts. In fact, 27% of couples surveyed for the FSA's research admitted to regularly arguing when trying to discuss their finances. However considering that 35% of British couples are apparently kept awake at night through worrying about their money situation, it's clear that communication must improve.

There are a number of reasons why money is be a tricky subject to tackle. The first is that our finances are typically seen as quite a personal matter, not often discussed with friends or family, and extremely rarely with colleagues. Since we're not used to discussing money, this reticence can carry through into all but the most open of relationships. Seeking help when we find ourselves in financial difficulty can therefore seem embarrassing, and as if we are crossing over into forbidden social territory.

How we manage our finances when in a relationship can also have a profound effect on the relationship itself. The joint bank account is often perceived as a serious commitment, and therefore many couples put this off until they are actually living together or have been together a number of years. Other couples choose to have a joint account for rent and household bill payments only, keeping the bulk of their earnings separate.

This means that unless you have taken the plunge and completely pooled your resources, your finances remain the one thing in your life that you are not sharing with someone else. The most compatible of couples can find that they have different attitudes towards spending, and research from AXA has found that as many as 24% of UK adults are hiding some form of credit (such as overdrafts, credit cards or store cards) from their partner. Feeling the need to justify any impulse buys and less-than-sensible credit card binges to a partner can lead to defensiveness, lying and secrecy.

Another common cause of domestic conflict is the stigma that is still attached to debt. If you are struggling to pay back the interest on credit cards and other loans, or if you are regularly spending more than you're earning, this can quickly become the 'elephant in the corner' in a relationship. In this context, telling a partner that you cannot cope is often seen as an admission of failure, rather than a sensible step towards facing up to and eventually resolving the issue.

If you're feeling that money is negatively affecting your relationship with your partner, you're certainly not alone. However, the issues are not going to go away on their own, so the first step is to open up and start communicating. Plan a time to talk, and try to keep the discussion calm. Hopefully together you will be able to work out a solution to the issue and decide whether seeking professional debt help is necessary.

Don't let money worries build up, and don't deal with them alone. If you would like to speak to a professional adviser, simply fill out our short debt form and a debt adviser from the SimplyFinance network will call you back to discuss your options.

Making New Year's Resolutions about Paying off Debts? You are not Alone.

2010-01-06T00:00:00Z

Getting fitter, spending more time with our families, taking up some hobbies...all of these are likely to feature on our New Year's resolution list at the start of 2010. However, the most popular resolutions appear to be related to our financial situations, as our recent survey shows.

'Managing my money better' came top of the list, chosen by 23% of respondents, followed by 'Paying off my debts', chosen by 20%. 19% of people stated that their main aim is 'Saving some money each month'. In total, money-related resolutions swept the board with a surprising 80% of the vote, showing that the current economic climate has really brought finances to the forefront of our minds.

In comparison, 'Getting fitter/getting in shape' was chosen by just 12% of those surveyed as the main resolution for 2010. 16% of people selected work-based resolutions; 10% planning to find a better-paid job, and the remainder wishing to find a role that was more satisfying than their current one. The effects of the recession on the job market were not overly apparent, with only 2% of respondents resolving to 'Get back into work'.

Two main conclusions can be drawn from these figures, the first being that personal finance is now featuring very highly in the public consciousness, and the second that people seem keen to manage their finances more effectively.

According to recent data collected by Datamonitor (June, 2009), 45% of UK consumers are more likely to shop around for better deals on their finances than they were before the downturn, which is one very positive outcome.

However, the same survey showed that 7% of UK consumers admit to avoiding opening their bank statements, a pattern of behaviour that can lead to anxiety and unnecessary charges. This combined with the finding that 49% of UK consumers do not read the financial news, either online or in the papers, shows that we still have a way to go towards better financial management.

The key to managing money is to be organised, keeping an eye on your balance (however depressing this may be at first), and making sure that bills and other commitments are the first things to leave your account when money comes in.

This will limit the possibilities of missed payments, bounced cheques and failed direct debits, meaning that your credit score will improve and you will be less likely to incur bank charges. We may not be able to keep all of our resolutions, but good money management is achievable with only a little effort all through the year.

Make your Money go Further in 2010

2009-12-22T00:00:00Z

It looks like we may be coming out of recession finally but we're not out of the woods yet. Make sure you're a money winner this year by following these simple steps to financial freedom.

Step 1 - Watch the sales

The January sales can be a great time to pick up bargains but they're also a danger area if you're not careful. So:
*    Do your research before the sales and only go to buy specific things. Don't go looking for any old bargain because that's what you'll end up with - something that's marked down that you didn't want and won't wear.
* Go for big products like sofas, washing machines and so on. If you need to furnish your home, this is the time to do it.
*    Go for Christmas things like cards, wrapping paper and gifts for next Christmas. These goods are often at least half price in the sales. Tuck them away and you'll be pleasantly surprised next December!
*    Remember that your usual rights hold true during the sales which means that if you buy something that is faulty - and you don't know that it's faulty when you buy it - you can get your money back or a replacement. However, shops don't have to refund you if you just don't like something anymore.

Step 2 - Get out of debt

It's more important than ever to get out of debt as fast as possible. If you haven't faced it yet, make January the time to start your way towards freedom from debt. This is the time to look at all your outgoings and see where you can cut them down or switch to a cheaper option.

Look at your various debts and see if you could switch any of them to a 0% credit card or low lifetime balance card. List your debts for yourself according to how expensive each one is (in other words, what their APR is). Then each month, pay as much as you can into the most expensive one and just pay the minimum on the others. Keep doing that until you are down to nothing.

If it all seems too much to bear on your own, get free, professional help from:

*    the Citizens Advice Bureau (www.citizensadvice.org.uk),
*    The Consumer Credit Counselling Service (www.cccs.co.uk)
*    National Debtline (www.nationaldebtline.co.uk)

and join the Moneymagpie debt-busting plan where we send free emails to you to help you get out of debt.

Step 3 - Live a simple life and take advantage of discounts

One of the better aspects of the recession is that it has made us lose our appetite for the rampantly consumer lifestyle we've been into for the last twenty years. Now, it's cool to be thrifty. So embrace the new cool and live a simpler, cheaper, happier life.

* Haggle. Yes, haggle in shops every time you go in. Even high street stores will consider a discount now if you pick the manager and ask nicely enough. If you can't get a discount see if they will throw in free delivery or maybe two for the price of one.
*    Make sure you get a discount on everything. Sign up to a few discount voucher sites and trawl through to find bargains (there's a lot of rubbish on all the voucher sites but there are a few gems hidden there). Also sign up to the Moneymagpie.com 'Bargain Alert' which sends the latest bargain news to your inbox.
*    Recycle everything you can including old envelopes (for writing lists), clothes (darned, re-made or cut-down to make cleaning cloths), jars (for home-made jam or for storage) and so on.
*    Get into energy efficiency including insulating your loft, putting the thermostat down and plugging all gaps around doors and windows to stop drafts.
*    Don't send greetings cards, send e-cards and tell everyone it's because of your 'carbon footprint'. For just £7.25 you can send as many delightful, all-singing, all-dancing ecards as you like, all year, from Jacquielawson.com.
*    Ditch your expensive gym membership and save on bus and train fares by walking and cycling to the shops, to work or anywhere you need to go. Once you get in the habit you will find the pounds drop off your waistline and fall into your wallet without your even noticing it!
*    Get free holiday accommodation by doing a house-swap. Join an agency like Homeexchange.com to swap with other families all round the world. This means you can have a fabulous holiday somewhere lovely and hot for just the price of your plane ticket
*    Get free entertainment by being part of the audience at your favourite TV shows. Sign up to the BBC website and Lostintv.com.
*    Make free phonecalls anywhere in the world using Voip (Voice over IP) technology. Join Skype for free, make sure your friends do too and you can talk for hours through your computers for nothing.

Step 4 - Plan for your future

It's more important than ever to think about your financial future and invest wisely for it. Don't waste time or effort asking your bank manager for advice. You will just be sold some under-performing products that make them money. Follow this system:
1.    Save - you must first make sure you have enough money set aside in a savings account to cover all your essential bills for at least three to six months, in case you suddenly can't earn.
2.    Diversify - you don't have to just have a pension for your retirement. In fact it's best to put money in a variety of products including pensions, stock market investments, property, bonds and even collections.
3.    Use the tax breaks - pensions are useful tax vehicles because the government puts in the tax you would have paid on the money you invest which is great for high earners. Also, use up your ISA allowance each tax year. Remember, in April it goes up to £10,200.

_____________________

Jasmine Birtles is founder of Moneymagpie.com. Join their free, weekly newsletter here for money-saving and money-making tips straight to your inbox every week.

Credit Action Launches Money Advice Map Service

2010-03-03T00:00:00Z

Money education charity Credit Action has just launched a service to make it easier for people in financial difficulties to seek help. The Money Advice Map is a new Internet search facility that enables users to search for their nearest money (or legal) advice centre simply by entering their postcode. For added convenience, the listings for each centre will also include details of the centre's opening hours.

Chris Tapp, Director of Credit Action, comments, "Commercial operators have the budget to advertise and market their services whereas charities are more likely to rely on word of mouth and local awareness. The Money Advice Map will enable people to know what sources of free help and advice are available locally." Currently the Money Advice Map incorporates over 6,000 money or legal advice centres, and this number will grow over the coming weeks as more partners join.

As Credit Action's Debt statistics from March show, the average household debt in the UK currently stands at 58,040 GBP (including mortgages). Interest repayments on personal debt such as credit cards and unsecured loans have reached 68.3bn GBP in the last 12 months, with an estimated 187m GBP paid in interest every day.

As an indication of the scale of the issue, an average day sees the Citizens Advice Bureau (featuring on the Money Advice Map) dealing with 9,500 new debt issues and 1,841 people made redundant. A property is repossessed every 11.4 minutes, and someone is declared bankrupt or insolvent every 3.69 minutes.

It is so important that if your debt is getting out of control you acknowledge the problem. In some cases, you may be able to get your finances back on track by careful budgeting and talking to your creditors to make manageable repayment plans. See Credit Action Director Chris Tapp's advice about talking to creditors "Approaching the Debt Dragons".

Visit the Money Advice Map to find the nearest help centre in your area, or read through the Debt articles on the SimplyFinance website for more information about the solutions available to help you get back on track.