Dealing with debt

On a theme of financial hardship (see previous post) the following is a republished piece on dealing with debt.

The article gives an overview of how to assess household financial health, prioritise debts, legal options and other solutions available, etc. It also lists specialist debt advice available at no cost both locally in North West Sheffield and from national agencies. Please don’t hesitate to share it with anyone you know who may be struggling with their money situation …

There were 33,073 individual insolvencies in the second quarter of 2009, up 27.4% on the same period in 2008.

Some comfort may be taken from the fact that the rise against the first quarter of 2009 was not significant, at only 2.9%.

The 33,073 individual insolvencies in the UK consisted of 18,870 bankruptcies, 12,225 individual voluntary arrangements and 1,978 debt relief orders (DRO).

DEALING with debt is a daunting reality for a growing number of people today.

Admitting you can’t meet your outgoings any more isn’t easy and the inability to cope financially often leads to ill-health.

However, there is plenty of free, confidential and impartial help available from the advice agencies listed on this page.

In case you feel unsure about what dealing with your debts entails, the following five steps should help explain and give you confidence in seeking solutions.

Step One – Your Monthly Household Budget
On a sheet of paper, list all household income in one column on the left. Count wages and any state benefits, pensions or tax credits you may receive. On the right, draw up a list of all regular, essential expenses.

Include amounts spent on rent/mortgage, council tax, utilities, food, TV licence, transport, clothes, prescriptions, essential hire purchase payments, children’s expenses, phones, court fines, pet food and any other absolutely essential household expenditure.

Calculate all figures on a monthly basis and subtract your expenses from your income. Work out how much, if anything, is left.

Step Two – Priority and Non-Priority Debts
On your budget sheet, further list any amounts you have to pay in addition to rent/mortgage, council tax and utilities bills in order to pay off those arrears. Any such arrears will be your “priority debts”. You can lose your home, possessions, fuel supply or even your liberty if you do not negotiate payments to these arrears on top of your regular ongoing liability.

If anything is left over after deducting payments to cover your priority debts, this is all you have with which to service your non-priority debts (usually unsecured loans, credit cards, overdrafts and such).

One way of calculating how much to offer each non-priority creditor – if that’s what you want to do – is to divide each individual debt by the total debt figure then multiply by the available amount. Repeat this for each non-priority creditor and you should then have a financial statement of your personal budget that shows you are making fair offers to these lenders.

There are debt solutions other than repayment offers. These include, bankruptcy, Individual Voluntary Arrangements, Administration Orders, Debt Relief Orders and more …

Contact one of the advice agencies listed in this article for more advice on all of your available options.

Step Three – Maximise Your Income and Reduce your Liabilities
Claim any state benefits, council benefits or tax credits you may be eligible for. The top two organisations in the list of advice agencies can help you with this.

Make sure you are actually liable for any of the debts you are currently struggling to repay. It may be that some are in someone else’s name or that there are valid legal arguments as to why you are not obliged to pay. Again the listed advice agencies can advise you about this in detail.

Step Four – Raising Money
If you have assets you can sell – jewels, vehicles, caravan, etc – these may raise enough cash to get rid of your debts. If so, trying to pay off priority debts first would make sense.

If your debt total isn’t huge but is nonetheless currently unmanageable, you might want to see if you can transfer balances onto a 0% balance transfer card and try to pay it off within the limit.

Be very wary of debt consolidation loans secured on any property you have

Step Five – Seeking Advice
The need for debt advice is increasing dramatically in the UK – so you are not alone!

You can get full help with benefits or tax credits claims as well as debt advice from your nearest Citizens Advice or through Community Legal Advice. They can also help deal with county court judgments or other legal action against you and will advise you about issues such as your credit rating.

You should not have to pay for advice. “Debt management companies” that ask for a fee rarely deal with priority debts and their quality can vary.

If it is just an issue of restructuring repayments of large debts owed to ordinary creditors, the Consumer Credit Counselling Service offers a decent, free, debt management service and they have a good record of dealing successfully with ordinary, non-priority creditors.

To Sum Up
Help is at hand for dealing with your debts if your household budget doesn’t balance and you are struggling. It is important to get debt advice tailored to your own specific situation and this article serves only as a guide. If your debts are comparatively small, you could consider trying to obtain a 0% balance transfer credit card.

If you have no priority debts and your credit commitments are too large to deal with, you could contact the Consumer Credit Counselling Service for help with negotiating reduced repayments.

Whatever you do, get free advice first about dealing with your debts from one of the agencies listed on this page.

Sources of free advice and help (click on the links)

  • Community Legal Advice provides advice and casework over the phone on debt, benefits, housing and employment problems and the website and has a search feature to locate details of your nearest free advice agency for face-to-face casework help if you prefer that
  • Foxhill & Parson Cross Advice Service
    522-524 Wordsworth Avenue
    Sheffield S5 9JG
    Tel: 245 0287
  • Hillsborough and Area Advice Service
    Proctor Place, Hillsborough
    Sheffield S6 4HF
    Tel: 285 2020

(© Russell Cavanagh. This article is based on journalistic research, although the author was a specialist housing and debt adviser for over a decade. It does not constitute financial advice. Any information should be considered in regard to specific circumstances. All tips are followed at your own risk and should be followed up with your own research.)

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