How to deal with too much debt

How to deal with too much debt
Chris Hackett

 

Millions of people in the UK have some form of personal debt. For many it may be their mortgage, for others it might be credit cards or personal loans.

Borrowing money is often quite easy and it can help us to pay for things in advance when we don’t have the money available in our bank accounts.

Sometimes we borrow money and our circumstances change. It could be a loss of income or a sudden increase in living costs. In this situation we may feel that we have too much debt and feel unable to cope with the pressure.

But how much debt is ‘too much’? and where can you get help if you need it?

 

Are you in a debt crisis?

A debt crisis is when you find yourself in a situation where your monthly outgoings, including your credit obligations (loans/ credit cards, etc) are more than your income.

You may feel helpless in this situation because no matter how hard you work, you can’t seem to catch up with the amount of money that you owe.

Even if you have large debts, if you can pay service them each month and pay off the minimum monthly repayments, you are probably not (yet) in a crisis.

But if your debts leave you with no money at the end of each month, possibly placing you further into debt, you may well be in a debt crisis.

If you believe that your circumstances are about to change (perhaps you are starting a new job, or your monthly outgoings are about to reduce) then you may be in a position to manage your debt obligations.

If you cannot see any foreseeable change in your circumstances, it might be worth speaking to somebody about your situation.

 

What are your options?

Debt Management Plan

A Debt Management Plan (DMP) is a solution often used to tackle ‘non-priority’ debts. These will typically be:

  • personal loans
  • payday loans
  • credit cards
  • store cards
  • overdrafts

and even money borrowed from friends or family.

A DMP cannot be used to mitigate any ‘priority debts’.

Priority debts may include:

  • Mortgage or rent payments
  • Utility Bills
  • Council Tax, VAT or income tax
  • TV Licence fees

How do Debt Management Plans work?

A debt management plan will typically be set up by a DMP provider. A DMP provider is somebody licensed to offer debt advice and structure agreements with your creditors to reduce your debt obligations.

Initially, you will have a conversation with somebody about your personal situation and reviews your financial circumstances. You will need to have an open discussion around your budgeting and monthly outgoings to get a clear idea of where they can help you.

In some cases, it may be possible to reduce your monthly repayments by up to 90% and consolidate your debt obligations into one manageable repayment (depending on your personal financial circumstances & policies of the creditors)

If you would like to find out more, visit Helpful Holly, which is a free online service.

IVA (Individual Voluntary Arrangements)

Unlike a debt management plan, an IVA is a legally binding contract between you and your creditors.

IVA’s are often popular with people struggling to manage large amounts of personal debt. It freezes interest rates and creates a structures repayment plan over a fixed period of time. Because an IVA is a legally binding contract, everybody needs to agree to the terms – including the creditors.

 

How does an IVA work?

For an IVA to work it must be set up by a qualified insolvency practitioner. This individual works with you to create a proposal that is then sent to your creditors for approval.

A typical IVA proposal will look to structure the repayment period over a period of 60 – 72 months. Whilst an IVA proposal can be refused, in practice it is normally in everybody’s best interests to come to an agreement.

If you have a large amount of personal debt and are unable to cope with your debt obligations, an IVA may be a solution to consider. Visit Helpful Holly for more information.

 

Trust Deed

A trust deed is a solution that is only open to Scottish residents. A trust deed is similar to an IVA, but there are some distinct differences.

Like an IVA, a trust deed is managed by insolvency practitioners. During the application process, the individual working with you will help you organise repayments plans and determine the length of the trust deed.

This person will then usually become a ‘trustee’ which means that the individual has the approval to act on your behalf.

Where possible, the trustee will look to grant a trust deed ‘protected status’. In this instance, the agreement is binding for all parties and creditors cannot take steps such as making you bankrupt or sending bailiffs to your home.

If you live in Scotland and your personal debts are more than £5000 you may qualify for a trust deed.

 

Summary: How to deal with too much debt.

If you have personal debts levels you cannot manage or comfortably repay each month, you may be in danger (or already be in) a spiral of debt.

High levels of debt can cause huge amounts of worry and stress which nobody enjoys.

Many people find themselves in difficulty when they ignore a situation of feel unable to ask for help.

If you are worried about your personal debt levels, visit Helpful Holly today.