02-Sep-2009
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?
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.