Struggling with debt is stressful. It can put your personal relationships under great strain and can lead to you having difficulties focusing at work. It is therefore important that you understand exactly how to deal with a debt problem so it can be resolved once and for all.
You may have tried to solve your debt issues by borrowing more. This is very common especially when you do not know what else to do. However if your financial situation has not improved more borrowing has probably just made the situation even worse. You now need to find a real solution.
How to recognise that you have a debt problem
There are some of the main symptoms that you could be experiencing if you are struggling with debt.
1. You run out of money before the end of every month
If you have outgoings that you cannot pay and find yourself borrowing from credit cards or using all of your overdraft each month then this is a good sign that you are struggling with debt. The reason you are constantly using credit is that you are paying your debt repayments from your income which means that you have nothing left to pay for your living expenses. The result is that you constantly have to borrow more.
2. Debt collection actions are being taken against you
If you have reached the point where you are unable to keep up with your debt repayments your creditors will start putting pressure on you to pay. This will be in the form of payment demand letters and phone calls. They may even be taking further legal action against you such as applying for a CCJ against you. If you are worried to answer your phone in case it is someone demanding money or you are receiving a daily post bag of threatening letters then you almost certainly have a debt problem.
3. You are being refused credit
If you are making your debt repayments late or simply missing them altogether this will be recorded on your credit file and your credit rating will be negatively affected. As a result you will start to be refused new applications for credit. A sure sign that you have a debt problem and it is getting worse is that you are unable to borrow any more on your credit cards and have started to use payday loans to supplement your income as these lenders will offer you cash loans even if your credit rating is poor.
4. You are at risk of being evicted from your property
One of the main symptoms of a serious debt problem is that you start to fall behind with your mortgage or rent payments. The reason this happens is that you tend to prioritise the payments of your unsecured debts and then run out of money to pay your mortgage or rent. This is a very serious situation as it could result in you being evicted from your home.
The correct way to resolve your debt problem
If you are experiencing any or all of the symptoms described above it is time to take positive action to solve your debt problem. There are three key steps that you need to go through now which will help you understand your financial situation and chose a debt management solution that best suits you.
Step 1: Understand how much you owe
Facing up to how much you owe can be painful. However it is a vital first step to getting out of debt. You need to make a list of all of your unsecured debts and do not leave any out because they ‘don’t count’ or ‘are going to be sorted’. Being honest with yourself is the first step to changing your situation for the better. Then add up all of your debts to give yourself a total. Also list and add up all of the monthly payments that you should make to your debts each month.
Step 2: Work out your disposable income
Your disposable income is the amount that you can actually afford to repay towards your debts each month. To calculate this you will first need to calculate your monthly living expenses budget. You deduct this from your monthly income and the amount remaining is your disposable income. have a look at this guide if you need more help: Calculate your Disposable Income
If your disposable income is less than the amount you should be paying all of your creditors each month then there is no question that you have a debt problem and you will need to implement a debt solution to help you.
Step 3: Choose the right debt management solution for you
There are four main debt solutions available to you in England, Wales and Northern Ireland. These include the DMP (Debt Management Plan), IVA (Individual Voluntary Arrangement); Bankruptcy and DRO (Debt Relief Order). A summary comparison of these different solutions is available here: Debt Solution Comparison Table. Alternatively you will find comprehensive information regarding each of the solutions by clicking on the relevant links below:
DMP (Debt Management plan)
IVA (Individual Voluntary Arrangement)
DRO (Debt Relief Order)
You can also get information about which of these solutions is best for you by using the “Find a Debt Solution” form on the left and right columns of every page on this site.
And remember if you cannot find what you are looking for help is always available by asking a question on our debt forum, giving us a call or having a chat to one of our experts on line.
BMD Tip: In Scotland the debt solution options are slightly different. More information about these is available here.
Hints and tips for dealing with debt
If you find you are struggling with debt here are some hints and tips about what to do and what not to do so that your debt problem is resolved in the fastest time possible.
Talk about the problem
You must speak to someone about your problem rather than trying to ignore it and hoping that it will go away on its own. Very often you will not be able to resolve the issue without help. A good way to start this process is to have a chat to one of the BeatMyDebt.com experts on the phone. However if you are not ready to do this why not thinking about using the on-line live chat facility. In addition there is the BeatMyDebt.com forum which is a great source of advice about how to deal with debt. It gives you the opportunity to read about the experiences of other people who found themselves in debt and the solutions they used and ask your own questions anonymously.
Get expert advice
Speak to an expert as soon as you feel that you can no longer cope with your debts. It is easy to become confused about which debt solution is right for you so simply chatting to someone in the pub may not be very helpful.
Don’t panic, give up or make yourself ill with worry. You are not alone if you are struggling with debt. Many other people have successfully resolved they serious debt problems. You should devote all your efforts into getting right debt management solution in place. This will get your debts under control and you will be able to focus back on improving your income from your employment or business.
Stop trying to borrow your way out of debt
Consolidating or borrowing more to try and solve a debt problem rarely works and you will end up making matters far worse.
Do not agree to make payments that you cannot afford
Telephone calls from your creditors or their collecting agents can be stressful and intimidating. If you are speaking to one of your creditors you must never make a promise to make a payment to them that you cannot afford. This will simply result in you failing to stick to the agreement and will make your creditors even more unhappy.