Dealing with Debt
When you find yourself snowed under financially it can be a frightening thing - whether it's £100 of £100,000, the struggle to clear debt can be so uphill you seem to be sliding back down again. You borrow because you need to, then you can't afford the repayments so you borrow more to pay people back and it just goes on and on and on. If you don't keep on top of the repayments, you risk damaging your credit status, having to return items bought with borrowed money and even losing your home - it is a very real concern and you cannot bury your head in the sand.
I'll never get into debt - I'm not that stupid
You might think that the only ones who get into debt are silly and irresponsible people with no concept of the value of money. This is simply not true - even the most conscientious spender can find themselves owing money and anyone with a mortgage is already in debt; it's just considered more acceptable because so many people don't own their own homes outright. Every time you use a credit or store card or dip into your overdraft, you have immediately put yourself in debt - however temporary. The longer you leave it to pay the money back, the more chance there is of the debt increasing due to interest charges and late payment fees. Maybe you've bought something that was very expensive and need to pay for it over an agreed period of time; you may be only paying the minimum amount for now and this can mean you ultimately are incurring more interest charges and end up paying back even more than you initially bought the item for.
Never assume you will never get into debt - it honestly can happen to anyone, no matter how much or how little money they have. Yeah, it really can be simple - with people offering loans on TV; pre-filled credit card application forms dropping through your letterbox; shop assistants pushing store card offers at you whenever you purchase something from their shop - it's not difficult to see how some people end up borrowing money without even really thinking about how they might pay it back. What they don't check carefully is the small print and just how tangled some credit agreements can be - these guys like to sneak in charges whenever and wherever they can, so you need to be very careful about what you sign up for.
At first glance, many credit agreements look incredibly attractive - they may be offering money back, low interest rates for a period of time and even may throw in something for free like a year's car insurance or a free gift when you sign the dotted line.
BUT
If something looks too good to be true, then it probably is. These companies have to make their money somehow and they thrive on people being unable to keep up their repayments. Often they have ridiculously high interest rates or slap phenomenal charges on top of the original debt the moment you fall behind with a payment. The only companies who don't tend to behave this way are amenities such as gas, water and electricity - but that doesn't mean you can avoid paying them. If you fall behind on things like mortgage repayments, council tax and your TV licence, you face fines, possibly losing your home and even prison - not trying to scare anyone here, but it's the truth. And no one wants that to happen, so getting the problem addressed ASAP is essential.
Who can help me with my debt?
IF you live in the UK, the Citizen's Advice Bureau can often be an excellent source of advice and support - they can contact various companies on your behalf and try to get you on a repayment plan that you can afford - this is an invaluable service particularly if you owe to those who supply your home with gas, water and electricity. They can also speak to your landlord, if you have one, and the local council to discuss a suitable arrangement where you rent and council tax is concerned. This is vital - "don't delay if you cannot pay" is the motto you need to adopt if you are struggling financially because the longer you leave it to tell people you owe money to that you can't afford it, the worse the situation becomes.
Often, we get our bills in the post and don't even think about reading them properly - how many times have you just blindly paid for your gas or electricity without checking how they got to the figure they have charged you? When I lived in my old house, the electricity bill was always quite high and it wasn't until I found out that they had been estimating my quarterly usage and not basing it on an accurate and up to date meter reading that I realised I'd been paying extra for no reason whatsoever. Always check your meter reading against the company's estimate, if they have one - chances are they are mistaken in their charges and all you have to do is contact them and they'll send you out a new bill which also gives you a little extra time to pay for it. Also, if you are struggling to pay off a bill, read the information printed on the back of your bill and find the telephone number - call them up, explain the situation and between you, a more agreeable form of paying the money can be arranged. Utility companies are incredibly understanding these days if you can't pay and it is better to tell them than risk being cut off.
Another way of paying things off is by payment card - you agree to pay your bill via a small card (looks rather like a credit card) which you can take to the Post Office, local shop or other specified outlet and it is usually a few pounds a weeks as opposed to one big bill at the end of the month/quarter. But you must remember to keep up your payments as it is unlikely you will get another payment plan to use if you default on this one. If you tend to wait until your bills arrive and then just pay whatever they charge, it might be beneficial to you if you sign up for Direct Debit payments. As well as this, if you have access to the internet, you can opt for paperless billing whereby instead of a bill posted in the mail, it is emailed to you - both Direct Debit and paperless billing can often come with a discount such as £1 off your bill or lower monthly payments as an incentive to encourage everyone to do the same thing. Plus, paperless billing helps protect the environment so you can feel all self-righteous about it too, if that's your thing.
If your bills always seem too high, try going to somewhere like U Switch where you can compare your current rates with other companies that supply your area - then if you want to, switch! Do the same with any contract you are in and do it regularly to ensure you are always getting the best deal for your money. Unless you are in the type of contract whereby you cannot leave a company for a set period of time, there is no reason why you shouldn't keep shopping around. Similarly, always check every little detail when you get other suppliers coming to your door or phoning you up and trying to get you to change to their contract - don't sign anything unless you are completely sure it's right for you. Many is the time I have signed something to make a sales person go away, thinking I have plenty of time to cancel and then forget about it, miss the cancellation period and then have all the hassle of trying to sort it out. Mark cancellation periods in your diary or on your calendar so you know how long you have to change your mind.
Because professional advisors are your best bet, I'm not going to go into huge depth in this article - instead, I am going to point you in the direction of some fantastic people who can help you and won't try to get you to take out another loan or combine all your other debts. I'd be an idiot if I tried to address this subject fully as I am not a debt counsellor and whilst I've been in debt before when I was living on state benefits due to store cards, I was fortunate enough to have my debt (about £300) written off thanks to my church agreeing to write a cheque for the total amount so long as I attended regular meetings with a financial advisor - it worked, as I haven't been in debt since. But I am well aware that for someone to offer to pay off all your debts is more than rare, so I won't patronise you by making out like I know what it's like to owe thousands of pounds, because I don't. You deserve better than that and these guys can offer you just that:
Those guys will be able to tell you pretty much everything you need to know - including great ways to save money on future bills and purchases that don't involve taking out a credit agreement. All I can advise at this stage is to recognise you have a debt problem and then talk to those who can help you - and above all, listen to what they have to say. They are experts for a reason, y'know.
Tightening your belt
Yeah, not popular but sometimes necessary. The problem is, when people are in debt they tend to ignore the every day expenses that add up and just focus on trying to borrow extra to pay for the TV licence or gas bill. Truth is, we all have our little luxuries which can seriously dent the bank balance over time and it's important to realise that sometimes we have to deny ourselves that magazine if we want to be able to save a bit more for the necessary things in life. Try the following exercise for one month and see what happens:
- Buy a cashbook or small notebook and write outgoings at the top of each page, allowing one page for each day to help you keep track.
- Each day, carry your book with you and when you buy something that isn't essential (essential is the paying of a bill or the cost of travelling somewhere if you cannot walk to your destination - essential also counts towards the grocery shopping, although sweets and magazines are non-essential, and items such as deodorant, female hygiene products and medicines are considered essential too.) then you write it down and how much it cost. Make-up, cigarettes and alcohol do not count as essential either, I'm afraid - although if you are buying alcohol to cook with, such as red wine, then that can be included in your grocery essentials.
- At the end of each week, add up what you have spent on these little luxury items and record it in your book - don't be tempted to lie about what you have spent though because ultimately it is you who won't benefit.
- When the month is up, add up all of your expenses for the last 4 weeks or so and I guarantee you will be surprised at just how much these things cost - and you can see whether you really need these items or whether you just want them.
Don't forget when doing this exercise to include meals out, takeaways, that 40th pair of shoes and things like DVD's, CD's or computer games which are not intended as presents for somebody's birthday/anniversary or Christmas. So often we buy things on impulse or because it's on special offer and don't think of how many times we spend money in this way and what it could be costing us in the long run.
Another way to cut costs is to have a shopping list when you go and do the grocery shopping - supermarkets are well aware of the best way to make money out of their customers so they will purposefully position the fruit and vegetables at one end of the store and the milk and bread at the other so you end up going up and down every aisle, seeing all the special offers and things you don't normally buy but look appealing and voila! You return home with about thirty more items than you intended upon buying in the first place. Also, many supermarkets now do clothes and toys so if you have the kids with you it's just the shopping trip from hell, really, isn't it?? If possible, take a list with you when you hit the shops and leave the kids behind - if not, then be firm and prepare yourself for some first class whining...and here's the top tip for going shopping: Take cash not cards - if you don't have the money, then you can't waste it on things you don't need. If you have a set shopping list, then you can estimate from your old receipts what you usually spend and take the cash instead of a card. The temptation with cards is to spend more than you intend to because you have access to more money - if you can't take cash, then use a debit card as you can only spend what is in there unlike credit cards where you can spend far more and then you owe more.
If you regularly go to the gym as part of your exercise regime and you have to pay for it, consider cancelling your subscription and doing free activities such as skipping, walking and jogging instead. Yeah, I know that's not a popular notion but you will save a bundle - same as if you stop using the car to "nip down the shops" - if you can walk, then why don't you? Perhaps consider buying a bicycle instead of using the car all the time to travel; again, not expecting anyone to jump for joy at this suggestion but it can help you save a hell of a lot of money. If having a car is unavoidable then try downsizing to something less gas-guzzling; it will also drive down your insurance and tax, so it is win-win if you look at it like that. It's popular these days for families to have more than one car and that's ok so long as it is absolutely necessary that you have multiple cars. For instance, if one of you works but the other stays home is it the be all and end all for the person at home to have a car? Even if they have children, it is possible to carry on with life without a car and then if they do need to go shopping, they can use it when the other person comes home - almost all supermarkets now have a 24 hour or late opening policy, so it's much easier to do the shopping at night. Plus, the kids will be in bed so none of the nightmare tantrums and begging. Result!
For all you social drinkers and smokers out there, why not try cutting down or giving up? Then the money you would spend on alcohol and cigarettes can be put in a jar then at the end of the week/month you'll have quite a tidy sum to play with...same goes for those who have regular takeaways, lunches/dinners out at restaurants or buy something during their lunch break instead of bringing in something from home - put the money in a jar and watch it grow rather rapidly. Don't forget that your GP can help you stop smoking if you want to.
As always, if you want to talk about anything you are most welcome on our forums and if you prefer something a little more private, you can contact us and we'll get right back to you.