If In Debt What Should You Do?
The first thing you should do if you're struggling with debt is START TALKING ABOUT YOUR PROBLEMS WITH SOMEBODY.
Putting your head in the sand as we all know is the easy option. But your debts aren't going away.
However, by talking your problems through with an organisation like the National Debt Helpline (NDH) it will start to relieve an incredible amount of pressure and start to get rid of those dark clouds hanging over your head.
It is important to understand that there are many organisations in the UK that will offer all the help you need for free such as the ones listed above. Personally we really like the National Debt Helpline (see links below) as they worked wonders for a good friend of the author, see next heading.
Get Negotiating With Your Debtors
The friend of the author was heavily in debt with little extra income to make the monthly payments to a number of different companies. The NDH offered excellent advice and came up with a simple strategy where she wrote to her debtors, explained her financial situation and demanded that they initially accept token monthly payments (£1 a month, yes £1 it's not a typo). After all, what had she to lose?
Then over the next several months she was advised to start negotiating (all done by letter) to try and settle the individual debts. I believe she finally settled two debts for around 30p in the pound (ie, if the debt was £1,000 the full and final settlement amount was £300). But Barclaycard were tough and would only accept around 70p in the pound. All this took around 6-9 months.
Ultimately she had a massive result and this could not have been achieved without the excellent, and above all, knowledgeable advice from the National Debt Helpline.
Steer Clear Of Debt Help Company's That Charge A Fee
Another important point to remember when struggling with debt it to generally steer clear of all debt help companies that offer to help - but for a fee. Many of these firms are sharks preying on debtors who often through no fault of their own aren't that financially competent.
If in doubt, first check with a free debt help organisation to see what they advise regarding firms that charge a fee and if you really need to employ one.
Do Your Research Into IVAs
An IVA or Individual Voluntary Arrangement is a less restrictive alternative to bankruptcy and is aimed at people who have over £15,000 in debts.
Simply put it is an agreement made with creditors to settle a proportion of the debts over a 5 year period in return for regular monthly payments lasting 5 years.
But the companies who offer IVAs are in the business of making money and there has been a fair amount of media comment over the last few years suggesting that IVAs may not be the most suitable choice of action for everyone with large problem debts.
You're therefore strongly advised that before you sign any papers relating to an IVA you first talk with one of the free debt counselling firms to seek their opinion. This point cannot be stressed strongly enough.
Watch Out For The Debt Consolidation Companies
If you've ever watched satellite TV you will have seen a load of adverts (many very cynical) from the Debt Consolidation companies. Their pitch is always the same - consolidate all your monthly payments into one easy monthly payment that's far less than you're paying right now.
For example, imagine somebody is paying £100 a month on 4 credit cards and £100 a month on a personal loan for a total of £500.
The debt consolidation firm will offer a new loan where the money is used to pay off in full the 4 credit card balances plus the loan. They'll also reduce the total monthly payments down to perhaps £250.
Sounds great doesn't it?
But this is the financial services industry we're talking about so there's going to be plenty of catches. So what are the main ones -
- You can only get these loans if you own a property
- The new loan is secured on your home (called a "secured loan") which means if you fail to make the monthly payments your property will be at risk of being repossessed
- And the reason the monthly repayments have been massively reduced is because the loan time period will be increased to perhaps 20 or 25 years!
- So yes, lower monthly payments but because the loan is for so many years the total amount payable will be considerable
- The new loan is also likely to be incredibly inflexible meaning that if your financial circumstances change for the better over the years there is no way to reduce the loan amount without paying massive financial penalties. Basically you'll be stuck with it for many years
These loans have been an incredibly good deal for the lenders and truly bad for the consumers that have taken them out so please take note.
But if you do want to take one of these loans out and own a property first go and talk to all the High Street banks and Building Societies and see if they can offer you a better deal. Yes, you may have credit problems (CCJs, Defaults etc) but if you own a property you've still got a good asset that any financing can be secured against.
Summary
If you've got debt problems then first start talking with somebody in the know such as the National Debt Helpline. Study the their free guides (available from their website below, or they can send them out via mail). Then continue talking with them in order to work out a sensible strategy for the next several months.
The more you delay talking the more problems you'll have in the future.
One more thing - The NDH and other free debt help organisations are incredibly busy at the moment so don't be surprised if it takes you 10-30 minutes to get through via the telephone. Don't let this put you off as the advice is free and they are really there to help.
Good luck in sorting out those debts and get TALKING!
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