It can be difficult to come to terms with existing debt. When certain spending habits become ingrained, they can spiral out of control. You might not even realise that your financial situation is problematic. Acknowledging the warning signs is essential. If you have numerous credit cards, if you dread your monthly statement and if you are struggling to pay back the bare minimum, you might have a problem.
Accepting the reality of your situation isn’t easy. People in debt often feel they have failed in some way. Despite this, if your debt is too overpowering to deal with yourself, you will need to reassess your situation. It is important that you are proactive. Get to know your debt management options. Seek professional help and know how to deal with your creditors.
If you want to avoid bankruptcy and gain control over your finances, it is essential that you are well informed. We have collected all relevant information in one post, to facilitate your research and help you on your way.
Get (and remain) on good terms with your creditors
The best way forward is to prioritise communication with your creditors. Keep in regular contact and be honest about your situation. Never be afraid to contact your creditors. They might appear to be intimidating figures, but they are just people who have lent you money. If you fall out of contact with them for any reason, they will assume the worst and likely begin legal action against you. This is something you want to avoid at all costs. It is best for your own mental health to discuss the situation with your creditors. This way, you’ll have the greatest chance of arriving at a solution to suit everyone.
What to discuss with your creditors
Clarify how much money you owe and who you owe it to. Once you have a number, find out which debts are priority debts. These will be the debts you will aim to pay off first. Priority debts are more urgent, as they carry higher consequences for nonpayment. Priority debts include mortgages, council tax debts and rent arrears. If you aren’t in the financial position to repay your non-priority creditors, you will need to carefully consider your decisions going forward.
Next, get to know what your non-priority debts are. These will be things such as unsecured loans, credit card debts, store cards and overdrafts.
Once you have the full picture of your true debt, you can begin making a plan. You could decide to go forward with a Debt Management Plan (DMP). DMPs are an informal, flexible and non-legally binding debt management option.There is no legal process involved, and it can be organised by you and your creditors. During this time, you will decide a reasonable monthly repayment sum. Eventually, all your debt will be repaid at a schedule agreeable to you and your creditors.
The process will involve you creating a ‘statement of affairs’ to send to your creditors. This will show all the pertinent financial details including your income, expenditure, assets and dependents. Be as honest as possible with this document. If your creditors believe you are lying to them, they will be unlikely to cooperate.
Know your rights and what creditors can (and can’t) do
There are a lot of misconceptions surrounding the rights of creditors. It is important to know what creditors can and can’t legally do. For example, they can ring you, and they can send you letters requesting their money. They can also send collectors, but it is important to know that these are not bailiffs and, as such, they have no legal power to enter your home. If they don’t receive payment, they will likely continue to add interest to your debt. They can also apply for a County Court Judgement to recoup their money.
Despite their right to contact you, it should not cross the line of harassment. You should not be receiving phone calls at every hour of the day and night. You can even request that they only contact you via mail, although avoiding correspondence is a bad idea. Ignoring your problem will make things much worse.
Creditors can’t break data protection laws. They can’t speak to your friends or family without notifying you and getting your permission. Importantly, they can’t add excessive interest to your debt or increase the rate of interest due to missed payments. Above all, they can’t be abusive or threatening.
What to do if you can’t reach an agreement with your creditors
If you haven’t been able to see eye to eye with your creditors, then it might be time to seek professional help. Get in touch with a debt management professional. They have access to modern insolvency software or debt management software that will take your unique situation into account. This individual will then be able to advise on a relevant course of action. This doesn’t necessarily entail bankruptcy. In fact, bankruptcy should be considered a last resort.
There are a number of debt management options out there, some of which are formal and some of which are more informal. Their suitability will depend on you and your circumstances. It is important to remember that no debt is insurmountable. There is always someone willing to help you, and it is never too soon to turn your life around.