It has been almost five years since the credit crunch first bit and the economic downturn continues to play havoc with the average householder's finances.
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If you are struggling to cope with mounting debts and threatening letters are a feature of everyday life, you're not alone. However, it is possible to recover and there are options available that can help you out of what can seem like a hopeless situation.
Before you can even attempt to find a solution, you need first of all to face up to the problem. Burying your head in the sand will only make things worse - this is a problem that won't just go away. If you've been keeping your money worries to yourself, now is the time to tell someone. You might be surprised at how telling a spouse, family member or good friend can begin to lift the burden and set you on the road to recovery.
With your financial issues out in the open, it's time to make a plan. By working out your personal budget (and again, honesty is key if the plan is to work), noting incomings, outgoings and any arrears that are building up, you'll be able to see where to cut back. With this done, you can work out how much you can realistically afford to pay creditors.
Of course, all your debts will need to be dealt with but some should take priority. Mortgage repayments and secured loans, rent, taxes and utility bills should be top of your list.
Credit cards, store cards, overdrafts and catalogue repayments shouldn't be ignored but are considered non-priority debts when you're having serious financial difficulties.
Now that you've got that budget sorted out, you're ready to make contact with your creditors. By making contact, starting with the priority debts, you will be showing a willingness to pay and many creditors will look more kindly at your situation if you do so.
Be sure to have a repayment plan worked out before you call or write. Most lenders would rather not take you to court and will allow you to pay the arrears or debt off gradually over time. As long as you keep the payments up, you should be able to avoid more serious consequences such as repossession and county court judgements. Utility suppliers, for example, may encourage you to pay by direct debit, where the existing debt is incorporated into your monthly payments.
If you feel overwhelmed by the situation and are uncomfortable doing this yourself, a debt management company can do the negotiating for you, leaving you to pay one payment which is then distributed amongst your creditors. The majority of debt management companies will charge a fee but free plans are available from the National Debtline and the Consumer Credit Counselling Service.
There are many debt consolidation companies offering loans to cover all your debts too, but do be aware that the interest rates are often quite high and you will end up paying more than your original debt so get professional advice if you are considering this option.
What are the alternatives?
Even if it feels as though there is no way out, help is available. For example, if you owe less than £5,000 an Administration Order can help you to negotiate with creditors and make regular, affordable payments. You will, however, need to apply via your county court and there costs and conditions may apply.
Similarly, for those with debts less than £15,000 who do not own their own home, a debt relief order may enable you to avoid bankruptcy.
In more serious cases, it may be necessary to apply for an individual voluntary arrangement (IVA) via an authorised insolvency practitioner. This debt specialist will help you to work out exactly how much you can afford to pay and contact all your creditors on your behalf. They will then take one regular payment from you and spread the money between the creditors. An IVA usually means interest and charges on your debts is frozen, thereby allowing you to start to clear them.
Bear in mind though, that you MUST keep up the payments and you will be listed on the Individual Insolvency Register, making it hard for you to get credit.
Bankruptcy should always be seen as the last resort. When you are made bankrupt by the court, a 'trustee' is put in charge of your finances. The trustee may seize assets such as your home in order to pay some of the debts and you will have to hand over bank and credit cards. Any spare income can also be used to help pay your creditors.
After a period of 12 months, you are usually discharged from your debts. However, credit reference agencies keep a record of bankruptcy for six years, which means your ability to get credit will be severely affected.
For a free, confidential money healthcheck visit www.moneyadviceservice.org.uk. Alternatively, if you are in need of advice and support, try the Citizens Advice Bureau or the National Debtline who will discuss your financial problems and talk through the options available to you.