Reach out as soon as you know you’re not coping with your debts - part 2

Posted 13 March 2016

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It’s never too late to get help with problem debt and the sooner you reach out about the issue, the better.

How to address the problem

So, now you know that if you are struggling with making your debt repayments each month (even if you are still making them, but having to cut back in other areas like getting behind on your council tax), time is a factor which determines how severe the problem will become. But how should you go about addressing the issue? Well it will usually involve picking up the phone and speaking to someone about what led to the situation that you’re now in. This conversation will either be one that you have directly with your creditors, or one that you have with professional debt advisors, like the ones you can speak to by using the options on the left of this page.

If you’ve missed one or two payments, but you know the problem is temporary – in other words you know you’ll be able to get back on track with your contractual payments soon – it’s best to contact the creditor directly. You’ll need to explain why you missed the payments, when you’ll be able to make start paying again, and how you intend to catch up with the missing amounts. If the problem is temporary, it’s sometimes possible for the creditor to allow you to take a payment holiday (when you don’t have to make any payments for a while), or to stop interest and charges being applied to the debt for a certain time period.

However, there are some cases where it’s best to seek professional advice – and you are allowed to do this before you speak to your creditors. If legal action has already been taken against you, or you don’t know how you’re going to get back on track with your contractual payments for the foreseeable future, it’s best to speak to a debt expert, like the ones here at Debt Advisory Centre who can take you through your options.

Some people just don’t feel comfortable speaking to their creditors themselves and would rather someone with the relevant experience and knowledge dealt with this for them. If this is you, don’t hesitate to reach out for the professional support you need.

When you do then speak to your creditors, you will be able to tell them that you’ve sought professional advice and that you have every intention of paying the debt back as best you can, based on your affordability.

What kind of help is available?

If you speak to one of our advisors about your money and debt worries they will first carry out a review of your income and expenditure (I&E), to see exactly what you’ve got coming in and going out every month. They’ll then be able to work out the amount of money, if any, you have available to put towards your debts each month, known as your disposable income (DI).  First of all they will work out how much you need to cover essentials such as your rent, food, utilities and so on – what’s left is the money that you could afford to use to repay your debts.

From this point the advice we give you can go in one of two directions – we may simply offer you some budgeting advice, if it’s possible that lifestyle choices and cutting back could make the difference between being able to afford your debt repayments. Or, we can look into whether there are any debt solutions that could help you.

A debt solution is a plan that you follow with the aim of dealing with your unsecured debts once and for all. Some of them involve being able to reduce the amount that you pay towards your debts, some of them allow you to both reduce what you pay and write off a portion of your debts, and some allow you to stop paying towards your debts altogether. Each one is designed to help people in different circumstances, and has its own set of advantages and disadvantages.

Let’s bring that to life with a couple of examples. A Debt Management Plan (DMP), is an informal plan to repay your unsecured debts that you can put together either directly with your creditors, or through a debt solution provider like ourselves.

A DMP would allow you to cut your monthly repayments to an affordable sustainable amount based on your disposable income. It doesn’t involve any debt write-off – so this means you’d continue to pay this lower amount until the whole of the debt was repaid. So, how long a DMP can last and how much you’d have to pay towards your debts can vary greatly from person to person.

As the solution is informal, there’s no obligation for your lenders to freeze interest and charges, although in many cases they do decide to do this, if they can see that it would help you settle the balance.

In contrast, a Debt Relief Order (DRO) is a formal debt solution that aims to free you from your unsecured debts and can only be applied for through an approved intermediary, such as ourselves.

If you qualified for a DRO, the plan would only last for a year and, during that time, your payments towards the debts included in the plan would be completely suspended. If your situation did not improve during this time, your debts would be completely written off. As this solution is only meant to benefit those in most need, the qualifying criteria is very specific. You must have less than £50 in disposable income every month and have debts of less than £20,000 in order to qualify. You also can’t have assets worth more than £1,000, or a car worth more than £1,000.

As we said debt solutions, come along with some disadvantages as well, one of these being the damage to your credit file. A debt solution would show on your credit file for six years from the date that it started and may make it harder to be approved for credit in the future. Having said that if there are already defaults on your file you may find that the damage has already been done and that overall starting a debt solution is the right way forward.

We have lots more information on the other debts solutions available, and make sure you familiarise yourself with the Scottish solutions, if you’re struggling with debt north of the border.

We’re still here to help if you’ve already got a debt solution

It’s important to say that ongoing help and support is always available for those who have already started a debt solution through us. When you are on a debt solution we want to make sure that it’s working for you, so we’ll check in with you from time to time, to make sure everything is as it should be. But, if you know you’re going to have a problem making a payment on your solution, get in touch with us soon as possible.

If there’s going to be a problem with you making your payment, we can try and accommodate for this, depending on what solution you’re on and how long you think the change will last for. If you didn’t make us aware of the issue and just missed the payment, you run the risk of your solution failing and the creditors being able to continue with legal action and add any interest and charges back on.

So, just as it’s important to keep your creditors in the loop, you should let us know of any change in your circumstances as soon as you do.

Whether you need initial help to deal with mounting debt, or you have an issue with your existing debt solution, make sure you speak to someone as soon as you know you need it. Our advisors are ready and waiting for your call, or, if you’re not quite ready for that, why not explore the rest of the blog for further information on the debt solutions available and lots of money saving advice. 

by Christine Walsh

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