Links

Citizens Advice Guide
Compare UK Credit Cards
Community Legal Advice
Credit Counselling Service
Debt Advice Bureau
FLA
FSA
Motley Fool
National Debt Line
Office of Fair Trading
Moneyclaim on line
Payplan - Free Service

Recommended Sites

Citizens Advice Guide
ClearDebt
Compare UK Credit Cards
Community Legal Advice
Credit Counselling Service
Finance and Leasing Association
Financial Ombudsman Service
Financial Services Authority
Motley Fool
National Debt Line
Office of Fair Trading
Payplan - Free Service

Useful Links

debt management
With Britain's personal debt increasing by £1m every 4 minutes, over 4,000 people research and find their debt solution here every day

Homebank Financial Services Limited
Choose Homebank Financial Services for a personal and professional service across the country. Whether you are looking for: remortgage, purchase, bad credit, buy to let, self-cert, self-build, right to buy or Spanish mortgages, our qualified, local to you consultants can help.

debtadvicebureau.org.uk - provides free advice on debt and credit problems, consolidation loans, debt management, IVAs and bankruptcy.

About Payday Loans - Want to find out more about Payday Loans? Learn all about them today at our informative website full of tips and advice.

Debt Consolidation Loan - Abacus specialise in helping UK residents who have been refused a debt consolidation loan elsewhere.

Debt Management Company - Debt Management can help slash loan and credit card repayments by up to 75%. Apply Online, Free Consultation, No Obligation. Try Us.

Debt Consolidation UK - Restructure your finances by a debt consolidation loan or a managed solution.

IVAs - Considering Bankruptcy? IVA may be the solution for you if you have debts over £15,000.

Useful Bits and Pieces

What Can You Pay?

It is essential that you know what your finances can afford before deciding how you are going to go about clearing your debts as some systems of repayment may prove to be too expensive for you at this time.  To find out what you have available to pay to your creditors you need to complete some form of financial analysis, where you can list your income, outgoings and all your creditors.  The figures produced will allow you to see how much you owe and to whom, they also allow you to calculate what you have left each month to pay towards your outstanding debt.  At the same time you should also consider:

• Can you get a cheaper mortgage?
• Are you overpaying, by way of interest, on your credit and store cards?
• Is your life or health insurance overpriced?
• Can you improve the situation?

You should ask yourself whether you really want to be paying for an overpriced mortgage or insurance policy, or would you rather use that money to get out of debt faster?

Analysing Your Debt

There are several debt analysis systems available on the web, you may wish to browse the links on this page, they will furnish you with a wealth of information which should help you to not only find the system that suits you, but should also help you to better understand your position.

If you would rather get started immediately you can do so by using the "Statement of Affairs Calculator" recommended by Motley Fool, which I have tested and found to be very helpful.

The "Statement of Affairs" tool on this site will calculate the money you have available to pay your creditors after you have filled in:

• Your monthly income;
• Your essential monthly outgoings;
• Your monthly debts;

If after calculation your income is higher than your expenditure you have a budget surplus and therefor you are in a position to pay something towards your debts. However, if your income is lower than your expenditure, you have a budget deficit and you will need to find a way to enable you to make some money available to start paying off your debts. If you are unable to find a way that enables you to pay an agreeable amount off your debt you may find that your creditors will take action against you. In these circumstances you may benefit from speaking to a debt counsellor who will be able to help you evaluate your spending and make suggestions on how best to manage your situation.  The Consumer Credit Counselling Service offer a service that may well meet your needs in these circumstances.

How Do You Pay Off Your Debt?

There are a number of ways that enable people to get out of debt, but whichever route you take it is likely to include one or more of the following:

Evaluate and reduce your spending

If your income is the maximum available to you, the only method by which you can increase your budget surplus is to reduce your spending.

Having assessed your expenditure using the financial analysis tool mentioned above, you now need to ask yourself the following questions:

• Do I really need to spend this money?
• If not can I manage without the item?
• If I can't do without it, can the cost of the item be reduced?

Having highlighted areas where you can reduce costs, i.e change electricity, gas or other service supplier, trade in for a smaller car, reduce money spent on food and drink, etc., you will need to draw up a plan of action that allows you to meet your saving goals

Maximising Your Income

Maximising your income means that you are taking every oportunity available to increase your income, this may include:

• Working overtime or doing another job in the evening or at weekends.
• Reducing your tax by checking your tax code is correct and that you are claiming any tax credits due to you.
• Claiming any benefits you are entitled to.

Information about Tax credits can be obtained from the Inland Revenue website and information about how to claim Welfare Benefits can be found on the Benefits Agency website

Consolidation Loans

Consolidation loans are used to pay off your existing debts and leave you with one single new loan with one lower monthly payment.  The payment is lower for two main reasons:

1. The loan is spread over a longer period of time than your existing debts;
2. The interest rate being charged is less than the average rate on your current debts.

Whilst obtaining a loan is not available to everyone, it can be a useful tool during a period of low interest rates, or when there is sufficient equity built up in a property so that a second mortgage or remortgage can be arranged.

Consolidation loans should be "a one time only" remedy, they should be avoided by those who repeatedly consolidate ever larger amounts of debt usually including previous consolidation loans.

Debt Management

For those who are unable to, or do not wish to consolidate their existing debts, they could write to the creditors in hope of reducing the monthly payments, this requires good negotiating skills and is frequently achieved through the use of a professional debt manager, there are a number available on the web, some through charitable organisations who do not charge and others that may charge you a fee.

A financial statement, much like the one from National Debt Line, will be taken to discover how much you can afford to pay your creditors after living costs and overheads are paid for, this surplus is then divided amongst your creditors on a pro-rata basis and offered as part of an informal arrangement.

Debt management arrangements are informal and can be cancelled by any one of your creditors at any time.  However, reputable creditors know that should circumstances deteriorate to the point that a "County Court Judgement" or an "Individual Voluntary Arrangement" is issued, the court would not look too kindly on creditors who had made the debtor's problems worse.

Snowballing

A system of debt management that allows you to use the surplus money calculated to pay off your creditors one-by-one.  It is mainly designed for credit card debt and allows for the payment of minimum amounts to all cards except one, which should be the one with the highest interest rate.  The surplus money, less the minimum payments, is then paid to this account to reduce the debt as quickly as possible, once the debt is reduced to zero you make maximum payments to the next highest interest debt. You need to be determined and stick to the rules if you choose to "snowball" your debts

The effects of "Snowballing" can be dramatically improved by transfering outstanding balances from high interest cards to 0% cards or low fixed interest cards, but you do have to monitor the system closely to ensure you re-transfer before the 0% period finishes, also 0% cards are becoming harder to acquire and many of the banks are now charging a 2% transfer fee, or higher, and some set a maximum charge of around £50 whilst others do not, so do check carefully, and read "zero rate balance transfers hard to find" and "When balance transfers backfire" before signing any agreement, and be sure you fully understand the terms and conditions.

Some very useful Information on the Snowball Method of repayment can be seen on WIKIPEDIA, The Free Encyclopedia Site, a spreadsheet is also available to download for a small fee, or if you have access to Microsoft Excell you can use the free one available on my "Snowballing" page, it comes with instructions and an example.  The calculator is American software and displays in dollars, but this is a minor distraction.  For further information, and for those without Excell, see the information on the same page.

Individual Voluntary Assessment (IVA)

To obtain an IVA you need to owe at least £15,000 to two or more lenders and you must have a surplus of income of at least £250 each month after your living expenses have been taken into account.  Due to the fact that the process of getting an IVA in place can take two to three months and there are large administration fees, which can run to two or three thousand pounds, it is understandable that people are reluctant to take the IVA course.

One benifit of an IVA is that after five years you are free from debt regardless of of what proportion of the debt you have repaid. However, if you fail to repay, it can result in bankruptcy and can lead to adverse reports on your credit record for a further six years.

To get an IVA in place, 75% of the creditors need to agree to the terms and conditions of the arrangement.  Once agreed, the arrangement is set in stone, an improvement over the informality of a debt management plan.  In addition interest charges will be stopped and a proportion of the overall debt may be written off.

Bankruptcy

Bankruptcy is possibly the most extreme option available, but one that may have to be considered, particularly if things are really bad.  In certain circumstances it can be the best option.  But once you are declared bankrupt you are likely to be locked into it for many years.

The long-term ramifications include:

• Being unable to access credit;
• Unable to be in certain types of business;
• Not allowed to open a current bank account.

The time limit for these restrictions was reduced when changes to the laws under the Enterprise Act 2002, which effect personal bankruptcy, came into force on the 1st April 2004, but this Middlesbrough case set a precedent in 2005 which could have severe ramifications for those who run up dishonest or blameworthy debts.

Well worth reading is the Motley Fool article "IVAs And Bankruptcy", I found it both informative and helpful.

What Next

Once you have decided on how you are going to go about reducing your debts it is important that you:

• Draw up a budget plan and STICK TO IT;
• Destroy ALL credit cards;
• Vow to be card free until you are solvent;
• Use any extra money, overtime, bonus, etc. to further reduce the debt;
• Once solvent, remain solvent;
• Only spend or borrow what you can afford to pay.

I hope these pages have helped, if you have succeeded and rid yourself of debt by some other means please let me know so that we can share it with those who are still suffering the effects of debt.  I wish you a long, happy, and debt free life.