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Debt Problems: Am I in debt?

Debt can snowball if not tackled head-on

With the current financial climate, many people of all ages are experiencing financial instability, leading to increased debts and an inability to make monthly payments on time.

With all debt problems, there are usually ways to reduce the debt and payment pressure to ultimately make the situation more manageable.

Is there a quick-fix solution to my debts?

Solutions are seldom quick, but with all types of debt, there is a path that can be taken to stop them spiralling out of control. What is imperative is that the problems are dealt with sooner rather than later.

Debts, as you may be aware, can quickly start to affect all elements of your life. It is important therefore that you obtain advice from reputable sources, such as a Citizen’s Advice Bureau or from your bank the minute you detect yourself being in a difficult position.

Some solutions can be as simple as reducing interest costs and coming up with a comprehensive budget, but always, professional advice is the best solution.

Am I in debt?

If you are finding it difficult to cope with paying all your standard outgoings, such as mortgage, rent, energy bills and credit card minimum payments OR if all your debts (excluding your mortgage) are more than you annual income (after tax) you are considered to be in debt crisis.

If you do not fall into this category, which is referred to as a debt crisis, there are different ways to tackle your debt.

Debt Crisis Management

The first step to recovering a severe debt issue is to book an appointment to see a specialist financial advisor at your local CAB (citizens advice Bureau) or one of the many UK based financial counselling services (see bottom of article).

They will be able to assess your specific situation and offer the correct way to recovery.

In some instances, they may suggest a Debt Management Plan, IVA (Individual Voluntary Agreement) or Bankruptcy.

However serious these may seem, the CAB will be realistic and help explain how these different routes will benefit you in the immediate and long-term future.

The important thing is not to panic, there is always a solution and you will feel a lot better when you have come to a definitive conclusion to financial recovery.

Non ‘Debt Crisis’ Management

If you are in a less severe situation, it is important that you implement some changes into your lifestyle rapidly to prevent you slipping into a worse position.

Control your spending to maximise income

  • Budgeting should be your first port of call. Sit down, work out exactly how much you’re spending and what on. See how best to use your income to pay off priority debts first and then meticulously split your income into essentials, before luxuries.
  • Can you claim any benefits? If your total earnings are less than £66,000 you may be entitled to something from the various government entitlements. Check your benefits entitlement here.
  • Mortgage help? There are three government schemes to help people whom are struggling to make their monthly payments. They range from help with paying the interest for you, to a scheme called ‘sale and rent back’, where the council buys a percentage of your home and rents it back to you. If you become financially stable at a later date, you can buy it back.
  • If you’ve encountered bank charges, which most people in debt inherently have, you may be able to claim some of these back as long as they were in the last 6 years. Additionally, if you have been incorrectly sold payment protection insurance (PPI) when taking out a bank loan, you may also be able to claim this back.
  • Check your Council Tax band. It is reported that 400,000 homes in the UK are currently paying too much. Check with your local authority to make sure your property is in the correct band according to the size and value of your home.

Cutting the cost of debt

Check with credit reference agencies to firstly check whether you’re in a position to get more credit. If so, you may be able to reduce your existing debt by consolidating.

  • Move your existing credit card balances to a cheaper credit card, using the ‘balance transfer’ offers – some of which can be 0% for up to and over a year.
  • Move other debts onto your Credit Card. Sometimes, Credit Cards can be the cheapest way to borrow money long term. Check the interest rates and be meticulous with your research and if it appears to be beneficial long term, speak to your credit card provider to ask about when it is possible to get special deals on ‘additional transfers’.
  • Grants and payment schemes are available from some large companies to help with the cost of say, Gas, Electricity and Water arrears. Speak to your utility companies and see if they will provide payment plans to help you clear long outstanding debts in a realistic manner or if grants are available to pay part of the debt.
  • Cheap personal loans can be a good way to consolidate outstanding debts other arrears, as they provide structure and offer a long-term route to being debt free. Check to ensure the interest rate is better than that of the best credit card you can obtain before taking out a loan.

If you are unsure as to the severity of your debt, below is a list of councillors existing in the UK offering confidential impartial advice and help to get on the road to recovery: