Getting into Debt and out of it again
Debt is everywhere Given that debt is everywhere, why are people so secretive about their own personal debt? Perceived embarrassment, shame and stigma are part of the answer. People have their pride and admitting to financial difficulty is like owning up to failure as a person, regardless of whether any blame attaches to the person.
Imagine, if even for a day, people shed their inhibitions regarding their personal finances and freely discussed their financial difficulties. Perceptions about certain people might change rapidly. Regardless of income, assets or status in business, politics or society debt can be the great leveler. It can be just as common for people earning high incomes and having many assets to have severe debt problems, as much as it is for people who have less income and less assets to have a less severe debt problem.
Getting into Debt It is easy to get into debt and also easy to blame other people and other things for our problems. Blaming someone else for a debt problem might ease the conscience or pain. You might blame your boss or employer’s that you lost that job or didn’t get paid enough. You might excuse yourself blame by wanting to give your children ‘nothing to want for’ and a good education? You might say “It wasn’t me that raised my credit limits on my credit cards. That’s the governments fault!” Why did they not call a halt to the easy availability of credit? Things like marriage breakdown and divorce can be a huge factor too. If you live in a small home with a growing family, taking out a loan to build an extension might seem like a good idea at the time. You can become dependant on things like overtime, which can suddenly be taken from you in an instant. “Everyone else is doing it so why can’t I is another great excuse”.
Personal Feelings and Fears I’m afraid that I will lose our family home. I feel a failure and my wife and children are beginning to blame me. My health is beginning to suffer from the worry and stress of it all. I don’t sleep properly anymore. If my employer finds out about my financial difficulties then my opportunities for advancement and promotion will be severely curtailed, given that I am in a position of trust and responsibility. I might even lose my job. My relationship with my partner is deteriorating and we argue all the time, mainly about money matters. I don’t rule out separation or divorce if things don’t improve. If my friends and neighbours find out they will probably shun me. My children are going to have to make do with an inadequate education. I will have to take a second job, if I can get one. My business is going to the wall and there is nothing I can do about it. I dread having to ask my parents for help and I may even have to ask them to let me move back to living with them. I was planning to get married and have children but now I can’ afford to do either.
Getting out of Debt In the UK there are many possible debt solutions available. One of the most popular and common solutions is to do a debt management plan with your creditors. This is an informal process which is only superficially controlled by legislation so many Debt Management Plans can last for a long time – even ten years or more. Your creditors are not legally bound by Debt Management and are under no obligation to freeze interest or penalties, although it is common for them to do so – as they would rather get some money than none. There aren’t many statistics on the number of DMPs in the UK but it is estimated that up to one million people are in one. Legislation to control the DMP process is expected in the next year or so. The second most common solution is bankruptcy and for many insolvent debtors this may be an attractive and indeed the best solution, particularly for those of you who have no assets (i.e. no assets to lose). Discharge in one year is now the norm although income payments may last for three years. Unfortunately one’s credit file is impaired for six years from commencement of bankruptcy. The third largest solution (the numbers today are almost equal to the bankruptcy numbers) is an individual voluntary arrangement (IVA) with creditors. This process is both legal and highly regulated. You pay part of your debt (what you can prove to afford) and your creditors get some money back from the debt. It usually lasts five years and at the end the you become debt free with the remaining portion of the debts being written off.
Choosing the right Debt Solution In the UK there are many sources of debt advice, ranging from the ‘free’ services offered by the CAB or the CCCS, sometimes described as ‘charity’ services. However there is also a large commercial sector of fee charging insolvency firms which offer a full range of insolvency services starting with free initial consultations. These consultations focus on a debtor’s financial standing – solvent or insolvent – and go on to consider optimum solutions. In fact these firms must explore and inform you of all your available options for dealing with your insolvency. These firms engage the services of highly qualified insolvency practitioners who are tightly regulated and it is recommended that debtors should shop around while getting their free advice. You should to talk to more than one firm and do not to agree to pay any upfront fees for initial advice as this should be a free service. Ultimately the debtor decides which option – if any – to go for. Trawling the internet is an excellent way of sourcing some of these firms. Some sites provide comparative ratings for firms so that you can make initial contact with only the most reputable firms. If you decide not to proceed with any or all such firms, you can simply walk away no worse off than before. However, at least you will know if you are insolvent or not and what the experts suggest that you do about it.
Are you struggling withdebt problems? Here at Debt advice we can help you.