If you currently find yourself overwhelmed with debt in the UK, take heart. The average debt per citizen in 2012 stands at £5,991. While you are definitely not alone in your negative debt situation, there is absolutely no need to stay in bondage to creditors for the rest of your days. 5 proactive active steps can help you regain control over your finances and make steady progress toward becoming debt free.
#1 – Make a List
The first step in rectifying a debt problem is getting an accurate gauge on the situation. Sit down with all of your bills and make a list of exactly what you owe to whom. Add up all your owed amounts and you will have a solid figure staring back at you from the page. You may not like what you see but at least you will know exactly where you stand at present.
#2 – Sort the List
All debts are not equal in importance, so you should sort out which debts need to be paid right now and which can wait until later. For example, your utility bills may not be your largest bill but if you fail to pay it you will be living in a home without water or electricity. Although there are some exceptions to the rule, you should generally prioritize your list with these items at the top:
Utilities – If you cannot pay the full sum owed, simply call your providers and set up a payment plan that works for you. As long as you are reliable in your repayments, they will adhere to a code of practice that will keep your utilities hooked up and turned on.
Loans Against the House – If you have a mortgage or secured loans that use your house as collateral, nonpayment can result in repossession of your property. You do not want the bank to sell your home, so funnel your funds into paying off this high priority debt immediately.
Rent – If you don’t own a home but rent one, you need to pay the landlord to avoid eviction. If you simply cannot afford to pay the full monthly rent, contact the landlord directly instead of avoiding his or her phone calls. You may be able to agree to reach an acceptable compromise until your financial situation improves.
Taxes – National insurance, VAT and council tax need to be paid or you may be forced into bankruptcy. Contact your council if you do not have sufficient funds to pay your tax, and work to reach a repayment agreement that you can realistically follow through on without missing a single payment. Ask about the Council Tax Benefit to see if you qualify for a lower total repayment sum.
Hire Purchase (HP) Debt – If you borrowed to purchase the car you drive to work every day it would be wise to keep up with your payments. Otherwise, you may wake one morning to discover that vehicle has been repossessed.
Legal Fees – If you owe child support or magistrate’s court fines figure out a way to repay or suffer the possible consequences of a bailiff showing up on your doorstep to haul away your possessions as repayment.
#3 – Create a Budget
A budget is the only way to prioritize spending to ensure that all of the bills on the top of your list get paid. Figure out exactly how much income you bring in every month. Then break down your expenses into categories such as rent, groceries, transportation, etc. Designate a spending limit for each category and track your expenditures throughout the month to ensure that you do not go beyond your spending cap.
If you find that your projected spending is off in a few categories it is okay to adjust your monthly budget but make sure that you are not habitually bending the budget each month to justify unwarranted expenditures. Pay your top priority bills before spending for entertainment and the like, then splurge only with what is left over after your responsibilities are covered.
#4 – Obtain Expert Advice
There is no reason to carry your debt burden in isolation. Debt relief experts are trained to provide you with a variety of viable solutions you may not have considered. For example, some debt experts may be able to help negotiate lower lump sum repayments with your creditors that reduce the total amount you expend by a significant margin.
Experts can also:
Help you craft a working budget
Teach you various ways to save for the future
Help you understand debt related laws in your region
Both the National Debtline and Citizens Advice organisations are available to you free of charge. Other debt experts may charge fees for their services, so you should ask if your prospective service providers are willing to provide you with a free consultation to explore your probable return on investment.
#5 – Contact Your Creditors
Now that you have a budgeted expense account for repayment of debt, it is time to contact your creditors and begin aggressively paying off what you owe. If you are working with debt experts, they will likely handle the negotiations for you. If you are going it alone, it is important that you know exactly what your spending cap is so you can stick to it in negotiations. Your creditors may try to extract a promise of repayment that you know in your heart you cannot afford. Do not cave in to demands you know you cannot meet, or it will turn out bad for everyone.
If you stick to your pre-set amounts in negotiations with your creditors you may be surprised to see how they bend your way after a while. The bottom line is that your creditors would rather receive some money than have you default entirely on your account. Be kind, yet firm, and hammer out a deal you can realistically execute.
In the event that one of your negotiations with creditors goes poorly, you may need to consider hiring a professional mediator to work things out. Professional mediation rates begin at £50 (plus VAT) for every hour of mediation if your account is than £5,000. While this may seem like an impossible expense in light of your mounting debt, these fees are far less than it would likely cost to argue your case in court. Charity groups like Law Works are also available to mediate your case at no charge if you meet their qualifications.
Debt problems are difficult to overcome but the above 5 steps will help you make and meet measurable goals that will progress you toward achieving the fiscal responsibility you desire.