Debts?
Getting in debt can be very easy sometimes but getting out of it is not always as straightforward.
And it seems that once you get into arrears, the charges
keep piling up, and you often end up owing far more than
you borrowed. Consumer debt, such as credit cards, is
also called 'revolving debt', because unless you repay
the balance in full every month, you get charged
interest on interest on interest! It would take the
average cardholder 22 years to repay their debt if they
just paid the minimum monthly payments, and they would
repay approximately double the original loan amount.
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However, there are ways out. Debt is generally broken
down into 2 different types.
-
Unsecured Debt - Debt that is not linked to your
property, e.g. Credit cards
-
Secured Debt - Debt that is usually secured on your
home or car
Secured Debt - The Priority!
No matter how much you owe on credit cards, it is always advisable to
prioritise the secured debt as if this is not paid
promptly, you risk losing your home. So if you are in
arrears with your mortgage or secured loan, then you
should do something about it today. It will not
go away!
There are various ways to address arrears, and
the most common of these is to
re-mortgage or
consolidate your previous loans to create a new loan that may have a lower interest rate, and therefore lower
monthly payments. Just be aware that although your
monthly repayments may be reduced, you may pay more back
in the long run if you spread the loan over a longer
period.
To learn more about
remortgages & secured loans, and whether they are right for you, please
click here to open that section in a new window.
The second option for you if you are in arrears is to
consider an I.V.A. You should really only consider an
I.V.A
if your monthly debt repayments (including your
mortgage) exceed your monthly incomings and this is not
likely to change in the near future. An I.V.A. is a serious step though, as
although it restructures your debt by writing off a
large percentage and reducing monthly payments by often 50-75%, it will also
adversely affect your credit scoring, making future
credit more difficult to attain.
To learn more about
I.V.A.'s and whether they are right for you, please
click here to open that section in a new window.
The final option might be to call your creditors
(people you owe money to) and try to negotiate a payment
plan. Most established lenders would much rather
organise a payment plan than repossess. We can provide
free advice on how to do this.
Unsecured Debt
Unsecured debt is, as its name suggests, money lent to you
with no collateral (such as a house), and that
is why it is often charged at a higher interest rate.
Therefore you are likely to pay much more back to the
lender over the term. However, the flip side to this is
that if you stop paying the debts back, there is very
little that the loan/credit card company can actually do
to recover that debt.
However, the lenders/credit card companies DO work on
threats. They threaten to send bailiffs and they can
threaten to damage your credit file. At present, unless
you allow bailiffs in to your house, they have very
limited powers of entry (see Glossary for more details
on Bailiffs Right of Entry). However, if you intend to get credit for
anything in the future, such as a mortgage or a car,
then you will need an fairly 'clean' credit record, and
if you have late payments recorded then you may be
refused credit or offered credit at very high interest
rates.
One of the easiest ways to deal with credit card or
loan debt is to re-finance your home consolidating
these debts into your mortgage, however, although your
monthly payments will reduce significantly, you may end
up paying much more over the term of the mortgage.
A secured loan may be a better route as these are
often over much shorter terms and the APR rate (the best
comparison between credit agreements) is likely to be
much lower than the cards or loans. Again though, this
means you could pay more over the term, and also you are
transferring unsecured debt (that cannot easily be
collected by the lenders) into secured debt which can
easily be collected - by repossessing your home.
A DIY
solution to the arrears is the informal Debt Management Plan
(D.M.P.). This is where your Debt Counsellor will contact
each creditor and negotiate a reduced monthly payment
for a limited timescale, often starting at £1 per month.
The disadvantage is that unless the creditor registers a
'Default' (see glossary) against you or passes the debt
to a recovery agent, then they can add
charges & interest to the total amount payable. However,
if they DO register a 'Default', then this will be a
major black mark against your name in future credit
applications.
The Solutions
It is clear that the potential solutions to arrears
are fairly numerous, however they can be split into 2
categories:
-
Solutions that do not damage your credit file (but
you repay most of the debt in full)
-
Solutions that WILL damage your credit file (but
will result in your paying much less back to the
creditors)
If you want a solution that will not damage you
credit file, then choose from the following possible
solutions that we offer:
If you do not envisage getting further credit (and
this could mean you getting turned down for mortgages,
overdrafts & car credit), then choose from the following
services that we offer
Whatever you decide, we advise that you move
quickly. You will have far more options available to you
if you take action after missing one mortgage payment
than if you wait until you have been to court for
repossession.
What would you like to do now? Choose from the
following list.
Remember - we never charge you a fee
- we make our money from your successful solution.
*We will pay you £200 in cash
if can't provide you with a viable solution within 30
days.
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