Turning Debt Problems Into A Thing Of The Past

It is official, debt problems are spiraling out of control. According to an article in the Daily Telegraph on the 13th April 2008, international accountancy firm Price Waterhouse Coopers claims that "the average adult now owes £33,000 through mortgages, credit cards and personal loans compared with £17,000 in 2000."

Are Debt Problems Making Life A Misery?

Whilst personal debt is a largely unavoidable part of life for many, a debt solution still needs to be identified. Falling behind with payments is a stressful experience, but ignoring creditors calls solves nothing.

It is important that creditors are kept informed of changes in circumstances. They may be more understanding if, for example, a debt problem occurred as a result of being made redundant. They won't be patient for long, but it does buy some time.

Accounting for Incomes, Spending And Personal Debt

It is an imperative that a comprehensive list of incomes and expenditures is drawn up. Knowing precisely what is owed and the incomes that are coming in is vital. This will allow a debt advisor to categorise outgoings in accordance with the associated criticality. It will also pinpoint whether any cost savings can be made.

Prioritising Debts

It may be that you can afford to pay some of your bills but not others, which means you must prioritise your debts. You should always pay critical debts first. These include your mortgage, rent, utility bills and council tax. Non-urgent finance isn't a priority, although it should never be ignored. Non-urgent debt includes: unsecured loans, credit cards, overdrafts, catalogue bills and money borrowed from friends and family.

Making Savings On Expenditure

There are many opportunities that can be taken advantage of to save money. Below are a few examples of things that can be done:

• Many mortgage providers offer fixed rates for a couple of years before they switch to Standard Variable Rate (SVR). Although there are some initial costs, switching will save thousands. Charlie Weston, Finance Editor for the Irish Independent stated that "People with variable rate mortgages are paying as much as €3,000 a year extra on a €300,000 loan."
• If renting a house and live alone, why not move to a 1 bedroom apartment? This could cut the cost of accommodation in half and help reduce debt problems.
• If credit card debts are an issue, pay more than the minimum payment. David Braze of the Motley Fool stated that "Paying the minimum - usually 2% to 3% of the outstanding balance - only prolongs the agony. The longer you take to repay the charges, the more interest they make, and the less cash you have in your pocket". Why not switch this balance to a zero interest introductory rate card?
• Paying too much for your utility and insurance bills? Use a price checker to secure a better deal.
• If there are savings in the bank it makes a lot more sense to use these to pay off debts. Why earn 0.1% on a current account when paying 15% on a loan?

After the cost cutting plans have been implemented, compose a new income and expenditure projection. It is possible that the debt problem will have been reversed and any arrears can be caught up with.

If debts remain a problem there are a number of debt solutions, such as an Individual Voluntary Arrangement or Debt Management Plan that can make turn financial problems around. It won't happen over night, but the sooner a plan is started the sooner debt problems can be eliminated.

Scrutinising Money Problems

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