‘Money Mondays’ – How to manage your debt
Living with debt can be stressful. Very stressful in deed. Ever since I went to University I have been in debt. Student loans. Bank loans. Reconsolidation loans. Credit cards. Payday loans. Sometimes the pressure of debt can get a bit too much. So here are some top tips on how to manage debt.
We contacted Stepchange who are the UK’s top debt agency, to offer their guidance on a number of topics to share with you all as part of our ‘Money Mondays’ series.
Living with debt
Living with debt can be stressful. When you are stressed, this can affect your appetite, sleep, working life and also your relationships. Especially if you have started to borrow money from people. The only thing you can do is to take control of the situation. Create a budget. Look at what debt solution is right for you. The longer you leave it, the more damage you could potentially be doing over time.
Ways of coping
Getting financial advice right now and support is crucial. However, don’t underestimate the emotional impact of financial stress. Read our 5 ways of dealing with financial stress when you are in debt.
It’s time to take control of the situation. Create a budget. Look at reducing your outgoings. If necessary, look at what debt solution is right for you. The longer you leave it, the more damage you could potentially be doing over time. Debt is one of the biggest causes of stress. You can do this!
Create a budget
Now is the best time to create a budget. Block out some time to write down all of your debts. Create a budget with all of your incomings and outgoings. Your loans, credit cards, store cards and personal debts. Once you understand the scale of your debt problem, you can start to take control.
What budgets do I pay first?
It’s the beginning of the month. All of your rent and priority bills should leave your account following pay day. When you feel overwhelmed by debt, it’s sometimes difficult to work out which one to pay first! Courtesy of Stepchange, here is a guide to what are your ‘priority bills’ and the consequences of non-payment.
Priority bills for people living in England or Wales
|Type of debt||Consequences of non-payment|
|Mortgage or secured loan||Repossession|
|Council Tax||A visit from bailiffs, money taken from wages, money taken from benefits, debt secured against home, bankruptcy or imprisonment|
|Child Maintenance||Money taken from wage, money taken from benefits, visit from bailiffs, imprisonment|
|Magistrates Court Fines||A visit from bailiffs, money taken from wage, money taken from benefits, imprisonment|
|Tax, VAT or National Insurance||A visit from bailiffs, money taken from wage, bankruptcy, County Court Judgment (CCJ)|
|County Court judgment||A visit from bailiffs, a charging order, money taken from wage|
|TV licence||A fine|
|Gas or electricity||Disconnection, money taken from benefits|
|Water||Money taken from your benefits, CCJ|
|Hire purchase||Repossession, CCJ|
Your unsecured debt is classed as ‘non-priority.’ The consequences of not paying non-priority debts each month are much less severe than not paying your priorities each month. If your non-priority debts are causing you to default on your priority bills, seek help immediately. You will need to work out a plan on reducing these to ensure that your priority bills are paid.
When you have credit card debt, it is tempting to pay back just the minimum payment each month. For example, if you owe £1,000 on your card a minimum payment of 2% would mean paying back £20 per month. If you only pay this, it will take a very long time to repay the full amount, as you are paying the interest charges back rather than the total credit card debt. The Money Advice Service has a useful calculator on their website which lets you check how long it would take to pay off a credit card debt.
There are conflicting methods to help tackle credit card debt. Some people advise that you should pay off your lowest debt first so you can then tackle the bigger debts. Simply pay off the minimum payments on all cards to focus on one card as quickly as possible. However, another way to pay off credit cards is to look at the APR (annual percentage rate) for each card and pay the highest off first to save you more money long-term. Read How to manage credit card debt.
How to reduce debts
Negotiation: Once you have an understanding of your debts, you can start negotiating with your creditors for short-term help or something more long-term. Just be aware that any reduction in repayments may affect your credit rating. You will need to show them a budget sheet which shows all of your outgoings and incomings to justify a reduction in your debts or lower repayments during a period of difficulty.
Payment holiday: Sometimes you can ring your creditors and ask for a payment holiday. If a creditor agrees to a payment holiday, the payments you miss may be classed as arrears. This will then be marked on your credit file and this may make it harder to get credit in future.
Writing off debts
Your creditors may agree to write off part of your debt – or in some cases all of it – in the following circumstances:
- There’s no way you can realistically pay them anything If you have no assets and no money left after your priority bills and living costs, and this is not going to change, a creditor may decide it’s not worthwhile chasing you for money you don’t have.
- Your situation means it’s not appropriate to keep pursuing the debt Creditors may agree to write off a debt if continuing to collect it would have a detrimental effect on your mental or physical health. An example of this is if you have a terminal illness, as it may not be fair to keep asking for payments.
- You can pay them a lump sum Sometimes creditors will agree to accept a percentage of the outstanding debt in one lump sum and then write off the remainder. This is often known as a full and final settlement.
None of these options are guaranteed and your creditors could still refuse. They might also want further information from you before making a decision.
If your creditors agree to write off part or all of a debt, this may have an effect on your credit file and your ability to get future credit if your circumstances change.
It’s best to get professional advice when things feel out of control.
Stepchange – impartial debt advice
StepChange Debt Charity provides free and independent debt
advice by telephone and 24/7 through its online Debt Remedy tool.