If the Christmas period has left you struggling with debts, we offer some practical advice for getting your finances back under control.

The weeks just after Christmas can be the most difficult time of the year when you are trying to juggle your finances.

If you have not kept to a strict budget during the Christmas period then all too often you can find yourself facing debts that you cannot repay.

If you are suffering from a Christmas debt hangover you should not ignore your debt problems and hope that they will go away themselves. Generally this will not happen and you will need to take some practical steps to make sure that you deal with your debts. We look at some of the options open to you.

Review your Finances

If you know you are struggling financially, the first thing you need to do is have a review of your financial situation. This will help you understand exactly how big the problem is.

Carrying out a personal financial review is a simple thing to do. You just need to make some lists.

First list your monthly household income. Then in a second list, write down all of your monthly living expenses. You should not include any unsecured debt repayments in your living expenses list. It is a good idea to use our living expenses guide to help you do this.

By deducting your living expenses from your income you can then see how much money you have left over each month. We call this amount your disposable income and it is what you can use for paying your debts.

Are you struggling with debt after the Christmas period? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

Debt Management Options

If your disposable income is too little to cover the monthly debt repayments you have to make then the first thing to do is review your living expenses to see if there are any areas where you can cut back. If you are able to make some expenditure cuts which then allow you to pay your debts, this is a great first step.

However if you simply cannot cut back on your expenses or even after cutting back you are still unable to meet your debt repayments, then you should consider a debt management solution.

Debt Management Plan

A Debt Management Plan (DMP) is one of the most common personal debt solutions in the UK. It involves negotiating reduced payments with your creditors so that your total debt repayments fit your disposable income.

Using this solution will make your credit rating worse it will allow you to get back in control of your finances and start paying back what you owe in a managed way without allowing the situation to get worse.

If you feel comfortable there is nothing to stop you negotiating a Plan yourself. However if you would prefer help then there are both free and fee charging debt management companies who can help you each offering certain advantages and disadvantages.

Individual Voluntary Arrangement

If you have a larger amount of debt which you want to ensure is it is settled in a reasonable period of time then you should consider a more formal debt management solution known as an Individual Voluntary Arrangement (IVA).

This solution allows you to pay what you can afford towards your debt for a fixed period of time (normally 5 years). Interest charges are frozen and after that any unpaid debt is written off.

Because interest is frozen and money is written off these arrangements provide many advantages for people struggling with debt. However starting one is a serious commitment and before deciding to do so you must make sure that you understand both the advantages and the disadvantages and get expert advice

Bankruptcy

Bankruptcy is often seen as a last resort for dealing with debt. However over the past few years the rules surrounding this solution have been relaxed and also the stigma surrounding it has significantly reduced. For this reason many people who are struggling with debts are choosing to go bankrupt.

This solution allows your debts to be resolved in the shortest period of time. If you have no disposable income and cannot afford to make any payments at all, bankruptcy will last just 12 months before you are debt free. If you can afford to make a monthly payment towards your debt you will still have to so so but this will last just three years.

BMD Tip: If you owe less than £15000 and are not a home owner you also have the opportunity to consider a Debt Relief Order. This works in the same way as bankruptcy but costs far less to start and you make no monthly payments at all.