45% of British adults are currently finding it difficult to keep up with household bills and loan repayments, up from 30% a year ago according to debt charity StepChange. So, if debt is becoming a problem what can you do about it?
Most importantly, don’t delay in seeking help and advice. Another piece of StepChange research showed that 55% of its clients had waited more than a year before seeking help. Reasons for delaying vary, but stigma is a real problem. Research from the Financial Conduct Authority (FCA) shows that 42% of people who were struggling financially and had ignored attempts by their lenders to get in contact about missed payments, had done so because they felt ashamed that others would assume the issue was a result of poor money management.
In reality the vast majority of people find themselves in financial difficulty due to factors outside their control such as redundancy, ill health and more recently the soaring cost of living.
Get your priorities straight
Identify your priority debts where the consequence of defaulting are potentially very serious such as rent or mortgage arrears, energy bills and council tax and ensure that you tackle these first.
Contact your lenders
Contacting organisations to which you owe money may mean that you can negotiate a more affordable way to catch up with late payments. For example your energy supplier has a responsibility to help you find a solution and your credit card provider or mortgage lender might agree to let you take a break from instalments.
Seek Debt advice
There are a number of reputable organisations that provide debt advice free of charge including StepChange, National Debtline and PayPlan. Advisers will begin by carrying out a budgeting exercise in the shape of a full analysis of your financial commitments, outgoings and income. The next stages will depend on your particular situation. Working on your budget might be suggested or if things are more serious advisers may suggest debt solutions. A debt management plan is an informal agreement between lenders and borrowers that allows you to reorganise repayments for your non-priority debt (including credit cards and loans but not things such as mortgages or rent) in a way that you can afford.
Alternatively, an Individual Voluntary arrangement (IVA) is a legally binding agreement which ties you in to a long-term plan with other options including debt relief orders and bankruptcy. Each option has its own pros and cons and an adviser will help to see which option, if any suits you.
Choose a reputable service
Beware of commercial debt management companies looking to profit from those with debt problems, many of whom with very similar names to the genuine service providers. They will charge a fee that will be recouped from your own debt pile (usually between 10% and 15% of your monthly payment) and may suggest the solution that is most lucrative for them rather than best for you.
For example, IVA’s must be set up by an insolvency practitioner but you don’t need a debt management company to act as a paid intermediary. IVA’s are also an expensive option and not suitable for everybody.
Your credit score won’t be affected
40% of people struggling with debt wrongly believe that talking to a debt adviser will have a negative impact on their credit file. In fact, conversations with debt advice services won’t appear on your credit record although any debt solutions you subsequently take will show up for six years. If this is the case then the sooner you find a solution the sooner your credit score can recover.