This guide is designed to help you avoid getting into debt, as well as offering advice for borrowers concerned that their debts are getting on top of them.
Most of us have to borrow at some point – for example to buy a home or pay for a car. Generally speaking, however, getting into debt is to be avoided where possible.
The best way to avoid getting into debt is to live within your means. But as simple and obvious as that might sound, it can be tough sticking to a budget – especially when money is tight.
To make it easier, it is a good idea to sit down and work out exactly how much you have coming in each month. You can then subtract the amount you have to spend on essentials such as your mortgage or rent, your utility bills and everyday items such as food.
As long as the first figure is higher than the second one, and you do not spend any more than the difference on luxuries such as clothes and going out, for example, avoiding debt should not be a problem.
Over and above this, it is also sensible to put some cash aside for a rainy day whenever you can. After all, a little nest egg could mean the difference between an emergency such as your boiler or your car breaking down being a minor problem or a major crisis that pushes you well into the red.
An easy access savings account is a good choice for savings of this kind, while opening a Regular Savings account can really help you to get into the savings habit.
If you are already in debt, it is important to ensure that it is costing you as little as possible. This way, you can pay it off quickly without your payments going towards paying the interest rather than clearing the underlying amount you owe.
One way to do this is to consolidate several balances onto a credit card that charges 0% on balance transfers – or pay off your debts with one low-rate loan.
For those struggling to manage their debts, meanwhile, the best advice is to deal with the problem rather than trying to ignore it. If, for example, you are worried about meeting your mortgage payment (which, along with rent payments, should always be your first priority), a telephone call to your lender could provide a solution.
Many banks or building societies offer short-term payment holidays to those in financial hot water – but they will be much less sympathetic if you only get in touch after you have started missing payments.
If your debts are really getting on top of you, though, a debt charity such as StepChange is the best place to look for help. It can help you to decide between a variety of ways out, including setting up a debt management plan and even going bankrupt.
These debt management companies all charge for their services. However there are free options available including StepChange, National Debtline and Citizens Advice, which you may want to contact first. These are all independent charities.
Most of us have to borrow at some point – for example to buy a home or pay for a car.
Most of us need to borrow money at some stage, whether it’s to make a big purchase such as a house or car.
Having debts can seem overwhelming, but an IVA could offer one way to help you get back in control of your finances.
In most cases, borrowing money will mean paying interest on the amount you owe. And once you have started, it is easy to get dragged down into a debt spiral that can prove disastrous for your finances.
A person (or business) may be declared bankrupt if they owe more money than they can afford to repay.
Coping with debts can be extremely stressful, but if yours have spiralled out of control, an Individual Voluntary Arrangement (IVA) could provide one way to get back on track.
Managing your debts so that they don’t spiral out of control is vital, but it can be hard to know where to begin.
Is a debt management plan right for you?
A debt relief order is aimed at people who don’t own their home, have spare income and debts of less than £15,000.
It’s all too easy to run up debts, but it’s much harder to pay the money back.
If you are in serious debt, s trust deed is a possible solution, though they are available only in Scotland.
