Dealing with Debt Problems - 5 Important Steps

Sam Jackson

October 10, 2011

November 13, 2018

Dealing with Debt Problems - 5 Important Steps

With the World Economy as it is, people are struggling with money worries when their financial situation has changed and they just can't afford their debt repayment levels anymore. Lenders often view a customer's inability to pay as an avoidance of responsibilities. In reality, most debt problems are caused by sickness, divorce, lay-offs or cut-back working hours.

 

Debt Management

The idea of Debt Management is to create a budget that allows an individual to put the maximum amount of their income into paying off debts as soon as possible, while still being able to afford household living expenses and other essentials. If your income minus your other expenses is lower than the total monthly debt repayments, then alternative payment arrangements must be made. These arrangements can be informal; you can create a Debt Management Plan with the lender and agree on a repayment schedule that will suit your financial circumstances. Alternatively, arrangements can be done more formally, through Bankruptcy or Individual Voluntary Arrangement contracts.

Here's a simple five step guide to debt management:

1. Budgeting

Examine the statements for your bank or building society accounts and credit cards, to get a better idea of where your income and spending are, then create a monthly budget. This is something that's made very easy by online budget planner Money Dashboard. Prioritise all of your payments into ‘necessary' and ‘less than necessary'. What spending can you stop without causing yourself hardship?

2. Make a list

Build a list of all of your outstanding debts. You need to know how much you still owe, your monthly payment, the minimum amount due, and you can check your credit report with CreditExpert for more information. Secured debts should be flagged. These are the priority to pay off as non-payment could put your home at risk.

3. Open a dialogue with your creditors

It can be intimidating to receive letters through the door threatening legal action for non-payment, but you shouldn't be afraid to pick up the phone, write an email, or otherwise communicate with your lenders, explaining your financial situation and why you can't afford the payments you're due. In general, lenders will take a lenient approach to debtors who reach out to them, and they may agree to lowering payments, at least temporarily.

4. Ask for help

If you don't get anywhere with direct communication, there are people out there to that offer debt help. Call the Citizens Advice Bureau, and they can help you come to agreements with your debtors and represent your interests as best they can.

5. Stick to your Budget

Sometimes lenders will pressure you into increasing your payments. If you have carefully worked out your budget, you cannot afford to increase these payments without falling short on another necessary payment, so don't give in to the pressure.

Sam Jackson

Money Dashboard

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