The truth about bankruptcy
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If you’re not sure whether your debts are becoming a problem, these 10 questions should make it clear.
Not sure if your debts are becoming a problem? Then you really need to answer these 10 questions. Why? Because getting into money problems can have a significant long-term effect on your ability to get credit in the future, as well as potentially impacting on your work and home and social life too.
If you start to miss, pay late or only part-pay your monthly payments, and don’t communicate to your lenders why, they could be left with little option but to register defaults on your credit file. This will then start to have an impact on your credit history, which could cut your chances of being accepted for further credit at high street rates in the future.
So, it’s important that you deal with unmanageable debts as soon as you realise that’s what they’re becoming. If you’re not sure, read through these 10 questions and, if you answer ‘yes’ to most of them, you should really get on the phone, speak to a debt advisor and do something about it.
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1. Can you afford to pay your utility bills?
Your utility bills are classed as a priority bill, like your mortgage or rent, so should always be paid first. However, being unable to pay your utility bills is a warning sign you should not ignore, when you reach this point you seriously need to do something about it. Why? Because starting to miss, part-pay or pay bills late will become an issue very quickly. For example, with your gas you may find that the gas supplier tries to force you to have a pre-payment meter fitted (although, this would usually be as a last resort and would only take place after they’ve been to court and obtained a CCJ).
This might not seem like too big an issue, until you realise that pre-payment, or pay-as-you-go meters as they’re calling them these days, are often the most expensive tariffs. So while it might ease your situation in the short-term, long term you will end up paying more.
Also, depending on your utility supplier, missing payments for utilities may appear on your credit history. This can create problems if you try to apply for credit in the future, as all lenders will check your credit history to see whether you are high risk or not. If they see you’ve not been paying your bills on time, they are likely to think that you’re higher risk and either reject you outright or offer you lending at a much higher interest rate.
And, if you think you are alone in this situation – you’re not! In 2014, a survey revealed that one in ten customers are in arrears with their utility bills, with an average of over £230 owing.
If you’re prioritising payments on loans, credit cards and other borrowings, rather than paying your essential bills, you shouldn’t be. So, it’s time to think about speaking to someone about getting it sorted.
2. Have you stopped opening bills and statements from your lenders?
We know – it’s scary! Finally admitting that you’ve not been paying your bills, and dealing with the angry letters from your utility company can create the urge to ignore the issue and hope it’ll go away – like over a quarter of the people surveyed did. But, it won’t! In fact, it’ll just get worse. If you don’t open letters, you really have no idea of what you owe, or what the company is planning to do to recover their debt. So, if you’re being like an ostrich and burying your head in the sand, because you can’t face how much you owe, it’s time to talk to someone.
3. Have you had to borrow to pay for food?
Really, if you’re at the stage of having to borrow to pay for food, or anything else essential for that matter, you know you have to do something. Yes, you can cut back on nights out, holidays and clothes shopping to save money, but you’re not going to last long if you try to cut back too much on food. Of course, being able to afford food without having to borrow might just be a case of changing some of your habits and sticking to a budget. But, if it’s gone further than that and a bit of simple budgeting won’t solve the issue, get on the phone and speak to someone right now.
4. Do you rely on your credit to pay your rent or mortgage?
If you’ve got to the point where you find you have to borrow money to pay your rent or mortgage (both of which are priority bills) then warning lights should be flashing. If it becomes a regular occurrence it could lead to your debts spiralling out of control. Shelter states that over a million households did just that last year – preferring to put the payment on their card, rather than default. This might be fine on the odd occasion, when you make sure you pay back everything you owe when the bill falls due. Just like food, having a roof over your head is essential. And yet more than a million Brits found themselves in a position where they had to pay their rent or mortgage on credit in 2013. This is a sure sign that your finances are out of control.
5. Are you getting rejected for credit?
If you start being rejected when you apply for credit it can be because of lots of things. Lenders use a variety of methods to decide if they want to take the risk of lending you more money, and one of those might be to assess how much credit you’ve already got. This is because if they think you already have too much credit, they may be worried about how you will be able to maintain the payments for the amount you are asking them to lend you. And if they think this, it’s probably a good time to reassess your situation and put some kind of plan in place to reduce what you owe to a manageable level. If you don’t you risk defaulting and damaging your credit file long-term.
Okay, that’s plenty to be getting on with. Next time, we’ll look at the final 5 questions you should be thinking about.
by Shelley BowersBack to blog home