Research has shown that being in debt can affect all aspects of your life including your work performance, personal relationships and even your physical and mental health. For that reason, it’s absolutely crucial that you get the debt help that you need as soon as possible. We examine the following:
- Where you can find debt help
- Debt help programmes and your credit
- Consolidation of debts
- Whether banks can help you with debt
Where can I get debt help?
There are a number of organisations and charities in the UK which offer help with debts including:
- National Debtline
- Citizens Advice
These organisations can be contacted online, by phone and/or via live chat. If you prefer to talk to someone face-to-face, there is a debt advice locator which will tell you the organisation nearest to you.
All of these organisations provide debt help completely free of charge. There are private firms, like Claim Management Companies, advertising their services, but their fees can add thousands of pounds to your pre-existing debts.
How does a debt help programme affect your credit?
If you have debts which you’re struggling to repay, one solution might be to put a Debt Management Plan (DMP) in place. With the help of your debt advisor, you draw up an affordable repayment plan once your priority debts (such as housing costs) have been paid. Of course, debt solutions such as bankruptcy or an IVA plan will destroy your credit, but that should be made clear to you through the process.
Debt consolidation allows you to reduce both your monthly repayments and the risk of missed or late payments.
Although a DMP won’t necessarily be registered on your credit record, it will be apparent that you have money issues as the file will show that you aren’t making the minimum repayments as specified in your credit agreement. This information will remain on your credit file for 6 years. As a result, you’ll probably find difficulties in accessing other financial products. Even if a new credit application is approved, you’ll pay higher interest charges.
Questions on debt help
In the event that you are unable to repay a debt, creditors are, in most cases, in the legal position to pursue you for unsecured debts. Debt collection agencies may take over your debt from creditors. This can have a detrimental effect on your credit score. A debt could be written off after a 6 year period has passed, and if you take certain steps for the duration of your debt period. You should seek debt help when you are unable to make loan payments in order to avoid further financial problems.
If you wish to take control of your debts and overall financial situation, you must first review who you owe money to and how much. You should pay your bills and loan repayments monthly, so as to avoid taking a further hit to your credit score. You should make at least minimum monthly payments to avoid additional charges and increasing borrowing costs. You should build up an emergency fund so as to avoid needing to borrow money in an unplanned manner. Finally, you should set a budget and be strict with your monthly expenses.
Debt settlement, or debt management, is the process by which you take control of your financial obligations. This is an overall beneficial process that can lead to better financial terms with respect to your existing debts. The process involves getting in touch with your creditors and negotiating more favourable terms for your loan payments if you are struggling financially.
Does consolidating debt help?
One solution to spiralling debts could be consolidating debt through a personal loan or 0% interest balance transfer credit card. Before deciding if this is the right option, you should discuss this with your debt advisor.
Debt consolidation allows you to reduce both your monthly repayments and the risk of missed or late payments. However, you might find that you pay more in interest and the term of your new loan agreement is longer which means that you’ll end up paying much more in the long run. If your new personal loan is secured with your home as collateral, you also run the risk of repossession if you default. Debt consolidation is only a viable solution if it’s accompanied by budgeting and better money management. Another possibility is to consider using a pension fund for debt relief purposes.
Can banks help with debt?
Banks can offer short-term debt relief in the form of a pre-arranged overdraft. They might also be willing to offer you a secured/unsecured personal loan or balance transfer card. Before taking out more credit, it’s very important that you read their terms and conditions extremely carefully so this doesn’t make your financial situation worse.
Persistent debts are defined as ones for which you’ve paid more in interest and charges over an 18-month period than in paying off the amount borrowed. Once your debts remain unpaid after 36 months, the FCA has instructed banks to show forbearance and waive or suspend all additional charges until an affordable repayment plan can be put in place.