About Debt

As with most difficult issues in life a common reaction is to ignore them in the hope that they will go away.  This is an especially common reaction when your debt levels have overwhelmed you, with the result that you put your head in the sand and hope for the best.  Unfortunately, when it comes to debt it never does work like that.  Continuing interest charges and late penalty fees mean that debt levels just continue to rise, often exponentially bringing further stress, worry and heartache.

If your debt levels have become completely overwhelming we would always suggest that you seek independent help, especially from people such as the Citizen’s Advice Bureau who have no financial incentive to push you into a debt consolidation package which has beck end fees which they benefit from, unlike some advisers who try to pretend that they are independent debt counsellors.

If money worries haven’t quite reached those levels but they are causing enough concern that you would like to fix them,  then the following steps can really help to reduce your debts in the most efficient manner.

Firstly, start by pulling together all the unopen bills and statements you haven’t wanted to face.  It is important that you understand exactly how much you owe so you can tackle it head one, so make a list of every debt you have from your mortgage if you have one down to each and every one of the store cards you seem to have accumulated.

Next work out how much money you have coming in and pull together a budget of what you absolutely have to spend from that to live on.  Your first run will probably show that you don’t have don’t have enough cash.  Don’t worry, that is perfectly normal since if you did have a surplus you probably wouldn’t be in debt.   So now cut out all the extras you really don’t need, the coffee from starbucks you have everyday, the pint in the pub on the way home, the little dress that was calling you from the shop window.  Use a big red pen and get rid of them from your outgoings.  Keep doing this until you have eliminated all the unnecessary extras, be honest about it often keeping a money diary for a week or so will really open your eyes to exactly where your money has been spent.

Hopefully by now you have a list of debts you woe and a budget that is showing you will have some money left at the end of the month.  The key now is to use this leftover money wisely, we do that by using it to pay off the most expensive debts first.  Typically this will be things like credit cards and payday loans which have the highest APR of all types of debt.  Don’t believe us then use the slider on the Quick Loans site here to see for yourself just how much that short term loan cost you and that is before the default penalties for late loan repayments.

While this approach is not a quick fix, the beauty of it is that it become self perpetuating.  As you pay off your most expensive loans and borrowings it frees up more money in your budget which you can then use to further reduce your debts.  In effect you create the opposite of a vicious circle and use it for your own benefit.  It isn’t rocket science but it is effective and it does work so why not give it a try today – what do you have to lose other than your debts?

An IVA is an Individual Voluntary Arrangement, and it could indeed very well be the solution to eradicating  your debt problems, as it has the potential and ability to make up to 50 percent of your debt disappear, and by using an IVA you can effectively be debt free within a period as short as 5 years.

For those who are unaware an IVA is an agreement with your creditors which allows you to settle your outstanding debts over a large flat period of time (usually around 5 years). This arrangement allows you to make single cost effective payments, which covers your creditors (if you have more than one).

It is easy to see that the clearest advantage of IVA is that your repayments are lowered down considerably to one single manageable figure, and the interest for the repayments is frozen by the law and a lot of that initial debt that you owed is completely written off. So in this sense an IVA can effectively very quickly get you out of debt completely. However in order to obtain an IVA you have to meet strict criteria with your creditors. For example your total unsecured debt will have to be around the figure of at the very least £18, 500. And you will need to be able to prove that you have an ongoing stable income, which isn’t that bad but is made harder by the fact that on top of that you will usually need to prove you will have enough money left over from that per month to pay 200-250 a month towards the debt.

There is also the issue of the fact that even if you meet the above stringent criteria that an IVA may still not be right for you.

So it seems that overall an IVA has the potential to freeze your interest, make paying back your debt manageable and easier, and can write off up to half of your debt in one go. It can essentially get you out of debt however an IVA may not be right for you and obtaining an IVA may be harder than you anticipated.

Before we discuss the pros and cons of debt consolidation it may be useful to first establish what debt consolidation loans are. Essentially when you consolidate your debt you carry out one big loan to pay off a number of other smaller debts and this gives you the ability to essentially “consolidate” the money that you owe to people in one easy to control payment. This method comes with its pros, but also with some dangerous cons, which will be discussed below.

A pro is for example that this type of loan can be very useful if you ran up credit card debt when you were at university and as a result have a large number of high interest instalment loans to pay. The debt consolidation loan therefore lets you diminish all these small high interest loans on the credit cards and give you one management debt consolidation payment which is excellent news. With debt consolidation as there is one big loan you avoid late fees that are associated with trying to meet the payment of several loans.

However lets not forget that debt consolidation loans come with their problems and cons also. The biggest problem is that it can be incredibly difficult finding honest interest rates. There are many situations when the rate on the new debt consolidation loan isn’t any better than the rate you have to pay on your individual small loans, so consolidation has no great effect on the amount you have to pay back, it just makes things seemingly more manageable.

Another hidden thing with debt consolidation loans is that you may be paying off interest on one easy to manage loan however these types of loans often have a longer repayment period, so you may actually end up having to pay more interest in the long term, than you would paying back a slightly higher short term interest on a number of smaller loans.

It seems therefore that on the surface debt consolidation loans are great and make things a lot more manageable but there are a number of hidden problems below the surface that may cause some serious problems and not help you at all in the long term.

Personal debt is often considered as the worst kind of debt because it affects you most directly. High levels of personal debt also lead to many other problems such as family break ups, relationship problems and stress. However there are ways to regain control of personal debt. No matter how deep in debt you are, there is always a way out.

One thing that may be able to help the stress related to personal debt is seeking professional or expert debt advice. This is something that is often overlooked however can help you considerably. People that know what they are talking about can often advise you in the right way and give you the right tools to regain power and control personal debt by minimising it or better managing it.

Another huge thing you can do is develop financial planning skills. It is never too late to develop these essential skills that go a very long way in taming personal debt that has spiralled out of control. Developing financial planning skills also gives you confidence, and this is the confidence that is needed to break out of debt. There are many books, online tutorials and advice centres that can develop your financial planning skills.

Another option that has been around a long time but that isn’t as well known or does not get utilised by a lot of people in personal debt is the individual voluntary arrangement also known as the IVA.

So as can been from the above. If you have fallen into deep personal debt, it is really not the end of the world. There are many ways of climbing back out. The two biggest ways are developing better skills and confidence within yourself and going out and actually seeking help from people that have specialist knowledge and expertise in personal debt.