In today’s world, it’s far easier to get yourself into debt than it is to keep yourself debt free. With so many temptations and financial demands placed upon us, it’s no wonder we often find ourselves in tricky financial situations, it’s become the norm and for good reason.
The key with debt management is to recognise when it is becoming unmanageable rather than wait for the point when you are at risk of serious problems like bankruptcy or the threat of repossession.
With regards to debt management, there really are no quick wins or magic solutions but taking steps to address this issue will take you in a positive direction towards your goal.
It can be tempting to avoid checking your bank account or statements, but simply ignoring the problem and hoping it will go away is not the solution. Yes, it may be stressful and unsettling to think about, but if you focus on how much lighter and relaxed you will feel at the end of it, this may be motivation enough to keep you moving forward.
Here are some actions steps you can take to start rectifying your debt problems with the aim of reducing your stress in the process.
Before you can seek support and solutions, the very first thing you need to do is take stock of where you are now. Compiling a spreadsheet of all your debt, includes all amounts, regardless of if they seem insignificant in comparison to larger debts.
To do this thoroughly, you will need to get all your credit statements/reports as this will be the most accurate source for determining the exact amount of debt. Then, simply list the source of the debt, how much you owe and make note of any specific repayment terms.
At the end of this exercise, you should be quite clear on how much debt you have and its source.
Additionally, if you haven’t already, it can be wise to create a simple filing system for these important documents to enable you to easily access them when you need them.
Similar to the process for establishing the current situation with your debt, you will also need to know where you are with your general outgoings, which will help guide you on the viability of potential solutions.
Create a spreadsheet or document and using your bank statements, list each monthly expense. Use estimates for things like petrol, groceries etc if you don’t know the exact figures. Then minus off your income so you are left with a sum that represents what you can realistically afford each month to repay your debt.
It can be a good idea to start with large, important debts. Priority debt may include mortgage payments or rent and council tax and utility bills.
Debt management solutions
Now it’s time to choose the most suitable debt management solution, there are a few options available to you to help solve your debt problems. Here are some that you may wish to consider.
Remember these are debt management solutions, not debt consolidation. The differences are:
- Debt consolidation – taking out new credit to pay off debts
- Debt management – negotiate affordable payments with companies you owe money to
Both deal with lowering payments but in very different ways.
Debt management plan
A debt management plan (DMP) in its simplest form, is an informal agreement that allows you to make one debt repayment. A DMP is for individuals who have up to £4,500 worth of debt and can be set up through a DMP company who will liaise with your lenders and create agreeable terms for repayment.
Debt relief order (DRO)
This debt solution is an alternative to bankruptcy and is most suitable for individuals who are not home owners, have up to £20,000 in debt, have a disposable income of up to £50 per month and have less than £1,000 in assets. DRO’s usually last for 12 months, after which the debt is written off.
Individual voluntary arrangement (IVA)
An IVA is an ideal choice for those looking to clear a large portion of debt within a five to six year period. This is considered a better option when compared with bankruptcy, mainly due to it has less of an effect on your life. Another bonus, is all fees and charges are frozen at the time of taking out an IVA, meaning you only have to pay what you currently owe. There are even options to find the best IVA companies to make the application for you.
Usually seen as a last resort, filing for bankruptcy can be an option worth considering if you are clear on what is involved, for example – you may lose your home or car in the process. However, lasting just one year, you can see the light at the end of the debt tunnel when compared to other lengthier solutions.