How to avoid debt
However, the worst thing anyone with debts can do is bury their head in the sand – those red reminders won’t just disappear on their own. The good news is that there are plenty of ways to stay in control of debt, and there are options available for those who have reached the point where they need professional help.
The best way to avoid debt is obviously to try not to borrow money, but for the majority of us, that is impossible.
You should therefore keep a close eye on any credit arrangements you take out, and the amount of interest you are paying. Set up standing orders or direct debits to ensure you make repayments on time and if you are finding it difficult to pay, speak to your creditors as soon as possible.
You might be able to work out a more affordable repayment plan with them if you are struggling, but if you find you’re getting nowhere, then it’s worth asking for help from one of the free debt advice charities such as National Debtline, the StepChange (formerly the Consumer Credit Counselling Service) or the Money Advice Trust.
They may be able to talk to your creditors on your behalf, or help you come up with a sustainable Debt Management Plan so you can work towards paying off what you owe by making affordable monthly payments.
Options for those in debt
There are several routes available to people who are finding it impossible to pay off their debts. However, none of these should be taken lightly, as they can have a serious impact on your credit rating and you could even lose your home.
Options include an Individual Voluntary Arrangement (IVA) which is a legally binding arrangement whereby you agree to pay off an amount each month to your creditors over a five or six year period, with the option also to repay a lump sum.
After the IVA finishes, any remaining debts will be written off. To qualify for an IVA, you must owe at least £15,000 to a minimum of three creditors, and at least 75% of the companies you owe money to (in terms of value of debt, not number) must agree to the IVA.
Bankruptcy is another option, but this will involve your home and all your other assets being sold to repay what you owe. You can apply for bankruptcy yourself, or your creditors can enforce it on you.
Although bankruptcy only lasts for a year, it will remain on your credit file for six years, which will make it extremely difficult for you to make any credit applications.
Before choosing either of these routes, always seek advice and look carefully at the various ways you might be able to resolve your debt problems in order to find the best solution for your needs.