The truth about bankruptcy
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Don't fall into debt! Instead, use these 10 questions to find out if you need debt help.
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.
If you need help dealing with unmanageable debts, contact us using one of the buttons on the left.
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.
6. Are you borrowing more to cover your current debts?
If you regularly borrowing from Peter to pay Paul, you’re probably heading for problems. If you’ve only borrowed once or twice to pay your normal everyday bills, like electricity, gas and food, that’s probably fine. But, if you start to do this on a more regular basis, you’ll just end up going round in circles trying to find the money to pay everyone.
Don’t confuse this with debt consolidation though, which is a valid way to reduce your monthly outgoings, as long as you’re sure you will use the money you borrow to pay off your existing debt, and not pile up more problems for the future. Speak to a debt advisor and find a better way of dealing with your debts.
7. Are you hiding your debts from friends and family?
This is one of the most worrying signs that you’re dealing with unmanageable debts. Why? Because if you feel that you need to keep things from your family, you must be coming to the point where you also realise that your debts are an issue that you need to deal with. Again, keeping the extent of your money troubles a secret is not unusual, in fact, it’s quite common, with research done for us revealing that more than a fifth of UK adults are keeping their debts a secret from their family and friends. This means they're having to cope with the burden alone, which can be stressful and frightening. Thankfully, there’s always a solution available, no matter how bad things are. And all you need to do to find out which solution is best for you, is contact a debt advisor.
8. Do you have any savings?
This is a tricky one, but savings can be a useful tool for assessing your finances. If you can’t afford to put even a few rainy-day pounds away each month, because all your cash is taken up with paying your debts, you need to reassess your finances. The ‘experts’ say that you should have at least 3 months’ worth of wages saved, so if you lost your job, you’d have enough to live on until you (a) found something else (b) start to receive benefits. If you’re not in this position, do you know what you’d do if you lost your job? How would you pay your mortgage or rent?
9. Do you only pay the minimum amounts on your credit card(s)?
If you do, you might want to find out how long it’ll take you to pay off what you owe and how much you’ll end up paying, in total, by the time your balance is paid off. When you’re considering making payments on credit cards, the only real way to make them work for you is to pay off the balance, in full, by the due date. That way you pay no interest on the amount, so it’s like interest-free credit. If you don’t do this, you’ll automatically start paying interest, which makes the purchases much more expensive than they needed to be.
10. Are your outgoings regularly more than what’s coming in each month?
If they are, you are likely to be building-up problems for the future. If you regularly spend more than you earn, without making up the difference from your savings, then you are living beyond your means. This might be sustainable for a short period, but over time you’ll be building up bigger and bigger debts. It makes sense to try to prevent this from happening in the first place and a review of your budget, including all your incomings and outgoings, could help you find ways to cut back and rebalance your finances before it starts to become a real issue. If you realise that budgeting is not going to cure the problem, it’d be a good idea to speak to someone like us.
So, if you answered yes to some, or all, of these questions, you should think about getting advice on your debts. A good start would be to speak to one of our debt advisors. You can contact us using the options on the left of this page.
by Shelley BowersBack to blog home