| Index »TIPS ON HOW TO GET GRIP OF YOUR FINANCES |
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| TIPS ON HOW TO GET GRIP OF YOUR FINANCES
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| Personal Budjet
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| If you're in debt, work out a realistic personal budget so you know where your money's going and how much you can afford to pay those you owe money to. If you work out that you don't have enough to pay off your debts, look at ways of cutting your costs and increasing your income.
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| Increasing Your Income |
| Think about the ways in which you might earn extra money or increase your income. You may be able to claim benefits or tax credits.
You may be in debt because you're not receiving all the money you're entitled to.
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| For example, it's advisable to:
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Make sure you're not paying too much tax |
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Ensure you're receiving the benefits you're entitled to including tax credits |
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Think about renting out a spare rooms if you live in a house |
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Check whether you have proper protection covering the mortgage payment. |
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| Cutting Your Costs
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| You can look at your expenses to see where you can make savings.
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| Organise Your Debts
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| Make A List Of Your Debts
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| Before you can tackle a debt problem, you need to collect together information about your money affairs. Sit down and write a list of all the money you owe.
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| Priortise Debts
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| Once you've made a list of all your creditors, you need to work out which ones to deal with first. You need to deal with some debts first before others because the consequences of not paying these debts can be more serious than for other debts. You must have very good reasons, as you might have to convince a court or your other creditors why it is reasonable for you to treat these debts as more important than others.
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| Any money you have left over after paying your expenses and your priority creditors is called your available income. You can use this to pay off your non-priority creditors. You should share out your available income fairly between all your non-priority creditors. This means you should offer each creditor a percentage of your available income, based on the amount you owe them. These offers are called pro-rata offers. To work out your pro-rata offers, first of all multiply each individual debt by your available income. Then divide this sum by the total amount you owe to all of your non-priority creditors.
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| What Are The Priority Debts?
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| The Following May Be Considered As The Priority Debts:
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| Mortgage or rent arrears, Council tax arrears, Court fines such as magistrates' court fines for traffic offences, Maintenance payable to an ex-partner or children, Tax Arrears (Income tax or VAT etc).
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| The Following May Be Considered As The Non-Priority Debts.
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| Benefits overpayments, Credit debts such as overdrafts, loans, hire purchase, credit card accounts and catalogues, Student loans, Money borrowed from friends or family.
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| Sort Out Your Priority Debts
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| Don't ignore letters or phone calls from your priority creditors. Get in touch with them as early as possible and explain to them why you are in debt. If your priority creditors are threatening to take court action or have started to take court action against you and you need a little time to sort out your finances, request them some extra time. Once you have worked out how much you have left over after paying your expenses, contact each of your priority creditors and try to make an arrangement to pay back what you what you owe. For example, you may be able to pay an extra bit each month until the arrears are cleared. Or you may not have any extra money at the moment but know you will have a lump sum in three months' time which will clear the debt completely. If you can't afford to pay anything to your priority creditors and your situation isn't likely to get better, the outcome may be very serious. At this stage, if you do not act immediately, The problem will get from bad to worse.
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| Sort Out Your Non-Priority Debts
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| After dealing with your priority debts, you will need to work out how to deal with your non-priority debts. How you deal with your non-priority debts will depend on whether you have any money left over from dealing with your priority debts and paying for essential household expenses like housing costs and food.
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| SOLUTIONS - Different Options
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| You should weigh up the advantages and disadvantages of each of these options carefully. Get as much information as you can before making a decision and don't sign anything until you are sure it is the best option for you.
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| The following could be the options each of which we have discussed in detail below.
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| Solutions For Those Who Have The Money To Spare.
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| Making Offers To Creditors Yourself
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| Coming to arrangements with creditors
Once you've sorted out your personal budget, you can start to make arrangements with your lenders about how much to pay.
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| There are several options: |
| Informal Arrangements
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| As the name suggest, it is an informal way of approaching your creditors to get out of debts. If you know you can't pay all your debts, its important to prioritise your debts and to write to your creditors to see if you can agree on a repayment timetable. Your creditors could ignore it later and ask you to pay in full as it is not a binding agreement. |
| Asking A Debt Management Company To Negotiate With Your Creditors And Make Offers On Your Behalf. (Debt Management Plans) |
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| Debt Management Companies (DMCs)
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| DMCs offer help if you're in debt. They negotiate with your creditors on your behalf in order to reduce the payments you are making overall. You then make one payment to the DMC which distributes it to the creditors. Some DMCs are paid commission by creditors. However, most charge a fee, so you may have less money from your available income to settle your debts. Most DMCs offer free debt management plans. You will find more details of DMPs in the relevant section. |
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| Applying For A Court Order That Allows You To Pay Only A Proportion Of The Debt. This Is Called An Administration Order
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| Administration Orders
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| If one or more of your creditors has obtained a court judgement against you, the county court could make an administration order telling you to make regular payments to the court, which it will pass on to your creditors. An order will only be issued if you have enough regular income to meet the repayments and your total debts are less than £5,000. Repayments can be as little as £5 per month if that is all you can afford. You can apply for an order to be changed if you have difficulty keeping up the payments. |
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| Arranging A Legal Agreement With Your Creditors. This Is Called An Individual Voluntary Arrangement (IVA).
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| Independent Voluntary Arrangements (IVAs) |
| If you can't work out an informal arrangement, you can apply to court for an IVA, where you formally agree to pay part, or all, of your debts over a period of time (typically five years). You'll need an insolvency practitioner to set up the agreement, and 75 per cent (by value of your debts) of your creditors must agree to it. Bear in mind that IVAs take several months to organise, and It may involve you paying a large administration fee. |
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| Putting All Your Debts Into One Loan. This Is Called Loan Consolidation.
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| Consolidating Your Debts
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| If you're thinking about taking out a single loan to pay off all your existing debts, make sure you're not simply taking on more debt. Check the terms and conditions attached to the loan. Taking out a loan secured on your house may put your house at risk. So always seek independent advice before taking out any kind of loan.
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| Solutions For Those Who Have No Money To Spare.
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| If you have little or no money left after you have done your budget, you have nothing of value to sell and you think your circumstances are unlikely to get better soon, you will have limited options for dealing with your non-priority debts. The options you will have are:
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Asking your creditors to write off your debt |
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Applying for bankruptcy |
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| Bankruptcy
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| When you're declared bankrupt, an administrator uses your assets (property and possessions) to pay off your creditors. Bankruptcy is a serious matter - you'll have to give up possessions of value and the interest in your home. However, you might not have to become bankrupt just because you're in debt - you can try to make arrangements with your creditors instead. The above debt solutions are each analysed in details in the sections below
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| Where To Get Help And Advice
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| Dealing with the problems of debt can be daunting and if you are having problems coping with your credit payments you should never be afraid to ask for help. The sooner you act the sooner you can get your life back on course. Many organisations offer free, independent advice, including the Citizen Advice Bureau (CAB) and Consumer Credit Counselling Service (CCCS).
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| Citizens Advice Bureau (CAB)
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| Your local CAB is a good starting point for free advice. They provide free information and advice on legal, financial and other problems. You can find your local CAB in the phone book or on the CAB website.
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| Consumer Credit Counselling Service (CCCS)
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| The CCCS has a helpline providing free and impartial advice to people with debt problems. You can call their helpline on 0800 1381 111 between 8.00 am and 8.00 pm from Monday to Friday. You can also write to them.
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