Will I be in Debt Forever?

Image by Joel Bez, Zurich

More people than ever are experiencing serious stress as a result of high debt repayment levels which can no longer be afforded because of changes in their financial circumstances.

Figures from Credit Action published in March this year suggest that average household debt in the UK is £5,988, or if you include mortgages, £53,972. The Citizens Advice Bureaux claim to have dealt with 8,308 new debt problems in England and Wales every working day last year.

Lenders seem to tar the majority with the actions of a few and take the view that all borrowers are simply trying to avoid their responsibilities. The fact, nothing can be further from the truth, and most problems are caused through sickness, divorce, or redundancy/reduced working hours.

Debt Management can take various forms, but essentially it is a way of addressing debt worries by structuring debt repayments to a level that can be afforded within an individual's budget, having taken into account all other essential household living expenses.  Arrangements with creditors can be either formal, through Bankruptcy or Individual Voluntary Arrangements, which are formal, binding contracts, or informal through Debt Management Plans or bespoke arrangements to fit specific individual needs.

How To Budget Money

Start by looking at recent spending over the last few months and plan a budget that separates ‘Must Pay' items like loan repayment, rent, credit card bills or council tax, from ‘Less Necessary' items where purchase or payment can be delayed, and ‘Luxuries' which can be dropped if necessary. Use free finance software like Money Dashboard and a lot of the categorisation and maths will be calculated for you. The more ‘Luxuries' and ‘Less Necessary' transactions you can cut out, the more you will be able to pay towards your debts each month.

Debt List

For every debt you have, write down how much is owed, who it is owed to, whether it is secured or unsecured, and the interest rate on the outstanding amount. Debts with the highest interest rate should be paid first, and secured debts should be treated as higher priority than unsecured.

Conversations with Creditors

Once you have your budget, and you have an understanding of your total debts and how long it will take to pay them off, get in touch with your creditors and let them know. As long as you are co-operative, many organisations will be happy to postpone or even reduce your outstanding debts if you explain your financial difficulty and ask nicely.  Continue budgeting until you are debt-free and beyond and you'll find yourself a little richer every day.

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