Dealing with debt involves seeking professional advice and looking for strategic solutions. Approaches may include debt consolidation, negotiation with creditors, or formal debt management solutions.
Dealing with debt can be a challenging and isolating experience, but knowing how to approach the situation can help you navigate your money problems with confidence.
From which debts to deal with first to how to deal with debt collectors, managing your debts effectively can help you improve your financial health and well-being and embark on a journey to becoming debt-free.
"Whether you want to speed up the debt repayment process or just spend less on non-essential items, budgeting is key to regaining control of your finances."
Like most big life changes, making the decision to tackle your debt can be easier said than done.
However, there are some tips that can streamline the process of getting out of debt and lead to a healthier financial future:
The first step to dealing with debt should be taking stock of how much you owe and who you owe it to.
This can give you a starting point so you know where to begin and a rough idea of how long the debt repayment process is likely to take.
Some people find they make quicker progress by tackling their high-interest debts first (the avalanche method) while others find it easier to start with their smallest debts and gradually work their way up (the snowball method).
Once you have a clearer picture of your debts, you can create a monthly spending plan.
Whether you want to speed up the debt repayment process or just spend less on non-essential items, budgeting is key to regaining control of your finances.
The thought of creating a budget can sound time-consuming - especially if you've never budgeted before - but it can save you a significant amount of time and money in the long run and, more importantly, help you pay off your debts faster.
Being in debt can make it difficult to save but not having any spare cash set aside can plunge you deeper into debt - especially when an emergency expense arises.
Start by saving little and often and aim to build between three and six months' worth of living expenses.
Even if you don't meet your savings goals, a small emergency fund can be the difference between being able to afford an unexpected expense and being forced to take out a loan to cover the cost.
Borrowing more money can be tempting when you're struggling financially but dealing with the debt you already have is challenging enough without your balance increasing further.
Even if you're confident you'll handle the situation better this time around, avoiding credit altogether is the safest option for you and your finances and can help you avoid falling into a debt trap.
Before tackling your debts, it's important to know which to deal with first. Some debts carry serious consequences when left unpaid and must be dealt with as soon as possible while others don't require the same level of immediate attention.
Here is a quick guide to priority and non-priority debts:
Priority debts are debts that can cause serious problems if you continue to ignore them.
Examples of priority debts include rent and mortgage arrears, gas and electricity bills, council tax arrears, child maintenance, and court fines.
Depending on who you owe, ignoring priority debt could result in you facing bailiff action, your energy supply being disconnected, your belongings being seized, and your home being repossessed.
Non-priority debts are debts that are less serious than priority debts but should still be repaid to avoid enforcement action.
Examples of non-priority debts include personal loans, credit cards, catalogues, hire purchase agreements, and overdrafts.
Typically, creditors (the people you owe money to) will deal with non-priority debts by selling your debt to a third party, such as a debt collection agency, or applying for a court order to force you to pay what you owe.
Dealing with debt can take its toll on your mental health and it's not uncommon to lose track of how much you owe and who you owe it to - especially if you have multiple debts.
However, there are several steps you can take to find out which debts you owe.
The first thing you should do when you don't know which debts you owe is check your credit file.
This will provide you with a complete list of your debts, including outstanding balances, so you can get a clearer picture of your financial situation.
Most credit reference agencies will provide you with a copy of your statutory credit report for free.
Because it's not a requirement for lenders to report credit information to credit reference agencies, some debts may only appear on one or none of your credit files.
This is common for debts owed to HM Revenue & Customs (HMRC), the Department for Work and Pensions (DWP), and local authorities.
However, checking your bank statements may be able to help you find out who your creditors are, how much you've repaid so far, and when you last made any payments towards your debts.
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"Unlike court-appointed bailiffs, debt collectors have no right to enter your home and seize your belongings and can only ask you to repay the debt."
Finding out your debt has been passed to a debt collector can be daunting and it's normal to have questions, but there's no need to worry.
Unlike court-appointed bailiffs, debt collectors have no right to enter your home and seize your belongings and can only ask you to repay the debt.
Some debt collectors may try to intimidate you in an attempt to get you to pay more than you can afford, but you must not feel threatened or give in to their demands.
Dealing with debt collectors can be stressful and it can be tempting to ignore the debt in the hope that it goes away.
However, even if you can't afford to repay the debt in full, some debt collectors will be open to negotiating a repayment plan to allow you to repay the debt in regular instalments.
When a debt collection company contacts you, you can ask them to place a hold on your account to allow you to discuss the situation with a debt adviser.
They can provide tailored advice on how to deal with your debt and may even speak with the debt collection company on your behalf to negotiate a repayment plan that works for both parties.
When you're dealing with unaffordable debt, the thought of it being written off probably sounds like a dream come true.
ut depending on your circumstances, you may be able to get some or all of your debt written off by entering into a debt solution.
For example, an Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to repay a portion of your debt at an affordable rate over a set period (typically five years). Once your IVA comes to an end, any remaining debts not repaid through the arrangement will be written off and you'll be free to get on with your life.
Similarly, a Debt Relief Order (DRO) is a debt solution that allows you to write off your remaining debts if your financial situation doesn't improve for a set period (typically 12 months).
During this time, you don't need to make payments or deal with your creditors and all interest and charges will be frozen.
Living with money struggles can make it difficult to focus on other aspects of your life, but by learning how to deal with your debts, you can build a healthier relationship with your finances and look forward to a life free from the burden of debt.
From familiarising yourself with your rights when debt collectors contact you to knowing which debt solutions can write off your debts, knowledge is key on the journey out of debt.
Remember, as isolating as debt can be, you don't have to face it alone. There are various debt charities, organisations, and citizens advice bureaus available to provide expert debt help and support.
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