|1.||Bills||2.||How to pay your bills||3.||How to set up a bank account|
|4.||How to set up a savings account||5.||Borrowing money||6.||Credit score|
|7.||How to budget and save||8.||Education financial support||9.||What to do if you're in trouble|
10. What do I do if I am in Financial Trouble?
Life isn't cheap, and so it can be easy to get into financial trouble. Perhaps the most important piece of advice is that the sooner you can recognise and accept that you have a problem, the sooner you can start sorting it out. The longer you wait, the bigger the problem becomes, and the harder it gets to solve.
Once you have recognised that you have a problem, there are a number of steps you can take. These steps include:
Cancelling store cards
Store cards usually carry higher interest rates than credit cards, meaning your repayments will be higher each month. Also, the deals and offers that come with store cards could tempt you into buying things that you can't afford to pay for, getting you into even more trouble.
Learning to budget effectively
If you take the time to budget, you can keep better track of where your money is going, and where you can make spending cuts. For tips on budgeting, see our How to Budget page.
Avoid payday loans
While they may seem like an easy short-term solution, the amounts you have to repay can cause even more problems. For example, if you borrow £500 to pay back over 3 months, the average final amount you will need to pay is £725.22 (based on 32 results, from www.choosewisely.co.uk). There are also costs for missing payments – most lenders will add on £12 to £20 if you can't pay on the date you agreed, plus add around 1% of interest onto your loan per day until you pay it. This, on top of the standard interest charged by the lender, means that your final payment will be much higher than the original amount you borrowed. Failing to repay a payday loan will also affect your credit rating.
Bankruptcy can help with clearing your debts and making a fresh start, however it can have serious consequences. There are a number of advantages to declaring yourself bankrupt, such as:
- Clearing your debts, allowing you to start again;
- Putting a stop to any court action against you to recover money you owe;
However, there are also some disadvantages. These include:
- Damage to your credit rating;
- Some employers do not allow people to continue working for them if they have declared bankruptcy;
- If you own a business, it might be closed down and anything owned by the business would be sold off;
- Your house and non-essential possessions might be sold;
- Your pension savings might be taken
Individual Voluntary Agreement
An Individual Voluntary Agreement (IVA) is a formal agreement with your creditors (people you owe money to) to pay off your debts. An IVA can only be used to pay for certain debts, such as:
- Bank and building society loans and overdrafts;
- Credit cards;
- Personal loans;
- Store cards;
- Charge card;
- Council tax arrears;
- Tax debts;
- Electricity and gas debts
It cannot be used to pay for:
- Maintenance arrears that have been ordered by a court;
- Child support arrears;
- Student loans;
- Magistrates' court fines.
IVAs can have high costs attached to them, and it may affect your home, savings, possessions, and your credit rating, so you should think carefully before signing up for one.
An Administration Order is similar to an IVA — it is a formal agreement made with your creditors to pay off your debts. The difference between an Administration Order and an IVA is that you cannot pay off more than £5,000 worth of debts with an Administration Order, and you must have two or more debts.
Debt Relief Order
A Debt Relief Order (DRO) is a way to deal with debt when you don't own your own home, don't have much spare money, and your debts are £20,000 or less. As with the IVA mentioned above, there are certain debts that are covered by a DRO, such as:
- Credit cards, overdrafts and loans;
- Arrears with rent, utility bills, telephone bills, council tax and income tax;
- Benefits overpayments;
- Hire purchase or conditional sale agreements;
- Buy now - pay later agreements;
- Business debts
And there are some debts not covered by a DRO, which include:
- Magistrates court fines and confiscation orders - these are fines relating to criminal activity;
- Child support and maintenance;
- Student loans;
- Social fund loans;
- Compensation for death and injury
Debt Management Plans
A Debt Management Plan (DMP) is an agreement between you and your creditors for paying back "non-priority debts", which can include:
- Bank loans;
- Credit card payments;
- Student loans;
- Water bills;
- Benefits overpayments
Unlike the Individual Voluntary Agreement and Debt Relief Order mentioned above, a DMP is an informal agreement, meaning you aren't tied to the plan for a minimum period and you can cancel the plan any time.
Some advantages of a DMP include:
- Somebody else deals with your creditors for you;
- One set monthly payment makes it easier to budget
However, some disadvantages include:
- The smaller monthly payment means repaying the debt will take longer;
- As it is an informal agreement, your creditors may refuse to co-operate;
- The DMP may damage your credit score
- Citizens Advice debt solutions website
- Money Advice Service debt advice
- StepChange Debt Charity
- Debt Advice Foundation Charity