Increased living costs mean that I am struggling to pay debt

As the cost of household essentials continues to increase we consider your options if you find you are no longer able to afford to pay your debts. Over the past twelve months most of us have been faced with significant increases in our cost of living. Most notable have been increases in the cost of petrol, electricity, gas and food

These increases are coming at a time when most people’s incomes are frozen at best and at worst reducing due to losses of overtime, bonus reductions or shorter working hours.

While many home owners have been able to offset higher costs with lower mortgage payments, others are struggling particularly those who also have to repay high levels of personal debts. We consider the options for people whose debt repayments are becoming unmanageable.

Can you reduce costs in other areas?

If recent increases in the cost of living have left you struggling to pay your debts, the first thing you should do is review all of your finances and see if you can make savings anywhere else in your living expenses budget to compensate.

List all of your monthly living expenses and identify if there are any non essential payments that you can cut back on. It is important not to kid yourself into thinking that you will make unrealistic cuts. For example saying to yourself that you will simply give up smoking next month thus saving £150 although laudable may not be realistic or achievable.

If you feel that you are simply unable to make any further cuts to your budget and you will still struggle to pay your debt then the next step is to consider a debt management solution.

Look at starting a debt management solution

A debt management solution can be implemented to reduce the payments that you make to your unsecured debts so that they fit within the budget that you can afford.

You can use one of these solutions instead of trying to consolidate your debts with a single larger loan or by re-mortgaging your property to release equity which may well prove impossible in today’s lending environment especially if your credit rating is poor.

As such the best options today may well be for you to consider a debt solution such as a Debt Management Plan (DMP) or Individual Voluntary Arrangement (IVA). The key advantage of these solutions that they will allow you to dramatically reduce the amount that you have to pay each month towards your unsecured debts so that these payments can fit within the budget that you can afford.

What if you are already in a Debt Management Plan or IVA?

If you are already using a DMP or IVA and you are struggling to make your agreed payments because your cost of living has increased you need to take action straight away.

If you are in a DMP you can reduce the monthly payments you make relatively easily by simply. However if you are in an IVA reducing your monthly payments is more difficult. This will require the agreement of your insolvency practitioner who may also have to ask all of your creditors to accept the reduction.

Sometimes reducing your IVA payments will simply not be possible. If you simply cannot continue to make your payments you may then have to stop making your payments altogether and allow the Arrangement to fail. The next stop might then be to consider going Bankrupt especially if you are not a home owner or if there is little or no equity in the property you own.