Wednesday, 8 July 2009

Practical help with debt problems and debt management

posted by debts.org at 04:19

Practical help with debt problems and debt management

Like thousands of people in the UK, struggling to cope with debt problems is something we all dread. As much as we would like it to, debt will not go away on its own, and is a common problem. If you are worried about debt, the only way out of it is to face it head on, and take some practical steps to improving your finances. Draw up a list of how much you owe and to whom. Debts can grow quickly after unexpected events like loss of employment or divorce, and the sooner you address your debt problems, the sooner you will help yourself.

Debt management and how much do I owe?

Work out how much you owe by writing down everything in order of priority. High-priority debts are the ones which put your home at risk. Debt problems can include your mortgage or rent, council tax, tax bills, and gas and electricity bills. Lower priority debts include credit card debts, overdrafts, private loans from relatives and some hire purchase agreements. Any of these might become a priority debt if one of the creditors decides to take county court action (sheriff court in Scotland) or converts the debt from being unsecured to securing it against your home. Prioritise your debts and work out which debts are the most important to pay first. Don´t just pay the creditor who is putting most pressure on you, regardless of the debt involved. Credit card debts should not take priority over mortgage, rent or gas and electricity bills, for example. Make a note of all your income and expenditure, to work out how much you have left to pay your creditors.

Help your debt management problems by contacting your creditors

If, like many people in the UK, you are struggling to meet your mortgage payments or rent payments, contact your lender as quickly as possible. The sooner you do this, the lender will realise you are showing commitment to pay, and is more likely to arrange a reduced amount. You may be able to pay reduced monthly payments for a set amount of time, until you are back on your feet, or switch temporarily to an interest-only mortgage. You may also be able to extend the period of your loan, giving you more leeway and reduced payments. Most banks and building societies won´t rush in to repossessing homes if owners are having short-term difficulties, and will probably not take repossession action until the mortgage has not been paid for three months or more. The most important thing, if you think you are going to be unable to pay your mortgage, contact your lender immediately. Don´t leave it until you have missed three payments, and expect help. And never ignore letters or notifications from your lender. They are much more likely to help you if you show willing and commitment to finding a solution. Also remember, if you think you can walk away from a mortgage by posting the keys back to the vendor, you are wrong. You will still be responsible for the repayments until the property is sold, and you may be responsible for any shortfall between the price the house sells for and the amount you borrowed.

Deal directly with your landlord for rent arrears debt

If you have fallen behind with your monthly rent payments, speak directly to your landlord about paying off your rent arrears. The amount of time you can live in the property without an eviction notice from the landlord depends on your individual tenancy agreement, but the landlord is more likely to be helpful if you contact him as soon as possible. You may have to give notice, according to your tenancy agreement, and will be expected to pay this as well as any arrears that have accumulated. You may be entitled to housing benefit or local housing allowance to help with rent payments.

Draw up a debt management plan

You can draw up an informal arrangement or debt management plan to repay debts. Debts.org can help you negotiate payment arrangements with your creditors, and take the hassle away from you. Debt management plans can help you make affordable payments for non-priority debts such as credit cards debts.

Contact your creditors for a final settlement

If you know someone who will give you a lump sum to help pay some of your debts, contact your creditors and make a repayment offer, which may be accepted as full and final settlement, even if it is below the actual amount you owe. You need to explain to your creditors that this is a one-off payment offer.

Can bankruptcy solve serious debt problems?

Always take advice from a reputable company such as debts.org before filing for bankruptcy. Some recent press reports suggest bankruptcy is the easy way out, but it should only be seen as a last resort. Bankruptcy can badly affect your finances and your career. If you have absolutely no assets, bankruptcy may be the only option left open to you but check first if debts.org can help you with a debt management plan or an individual voluntary arrangement. Bankruptcy can end your career if you are a member of the Law Society, an estate agent, a stockbroker or a pub licensee, for example.

Individual voluntary arrangements (IVAs)

Individual voluntary arrangements are less-severe than bankruptcy, and have less implications in the future. An IVA is a legally-binding agreement between you and your creditors. Providing 75% of the creditors accept your offer, a formal proposal can be sought from the county court for a proposal to settle the debt within a fixed time period, normally of 5 years. Monthly payments must then be paid to an insolvency practitioner based on what you can afford. Debts.org can advise you on debt management plans and Independent Voluntary Arrangements.

An administration order to help your debt management problems

An administration order takes place when the court covers all of your outstanding debt. A monthly payment is made to the court which split it between your creditors, who in turn cannot take any action against you. The court will charge 10% for administration costs which is deducted from your monthly payments.

Seek advice from debts.org to find the best debt management options for you
For more detailed advice, contact www.debts.org, who will talk you through the best options to improve your financial situation and to help ease your debt problems.

Labels: bankruptcy, debt help, Debt Management Plan, IVA