What to do when you have large debts and are not able to keep up?
If you know you have large debts (say £10,000 or more) and you know you will have difficulty in keeping up, there are some simple procedure you can take!!
Step One – Don’t Panic
Step Two – Make a list of your debts
Step Three – Work out your budget
Step Four – Organize your high priority debts
Step Five – Organizing your non-priority debts.
Step One - Don’t Panic!!
Yes we know this is easier said than done, prospect of losing everything you have worked hard for is not easy on anyone! But we do mean when we say this don’t panic. There are some great institutions around with helpful advice! And we have a collection of these here. What is more is that you must realize that panicking will not achieve anything for you, sooner you act the sooner you will be able to break free!!
Step Two - Make a list of your debts
Before you decide on ANYTHING, get yourself organized!, start by making a list off everyone you owe money to, everything from you milkman to you mortgage and everything in between. If you owe £20 to your gran out it down in your list!!
We have put together a very basic excel sheet, that will get you in the right direction. Obviously this is free!! And can be downloaded from here. Please use it as a means to organize your thoughts and compile your list.
Once you have compiled your list of creditors, figure out from that list which ones are the most important, these will be the ones which if you do not pay will result insignificant difficult for yourself. We will call these debts High Priority Debts.
High Priority debts
Examples of such are
Mortgage or rent arrears
Gas and Electricity arrears
Council tax arrears
Think extremely carefully which debts you think are high priority, as you might need to convince your creditors that these are indeed necessary.
Lower-priority debts
Lower Priority Debt, please remember we are not sayi8ng don’t pay them!!! What we are saying is that in comparison these debts should be off lower priority then the ones listen above,
Credit debts such as overdrafts
Money borrowed from friends or family
Parking penalties issued by local authorities.
Generally speaking you can't be sent to prison for not paying non-priority debts. However if you don't make any offers to pay without explaining why, your will be taken to court.
Step Three - Work out your budget
List all you income and expense of you house, this is where our very basic excel sheet will come in again! Look thorough it, use it as a guide.
Under income, include items such as but not limited to:
Wages or salaries for your partner and yourself. These should be your net earnings (earning that you actually bring home). If you do not have a fix income then average your income over the past 6 months
Any benefits you are paid, such as Child Benefit etc
Under expenses, include items such as but not limited to:
Housekeeping. Items such as foods, School Dinners, cleaning materials, cigarettes, sweets, children's pocket money and even pet food.
Housing costs. (mortgage , rent or content insurance)
Council tax
Electricity Gas and Water charges
Telephone charges
Travel expenses, these include public transport and items cost of running you car.
TV licence
When you have added up all the figures, you will see if you have any spare money to pay off you debt. If so an advisory agency (such as the ones in the link) will be able to help!
Step Four – Organize your High Priority Debts
Ignoring letters or phone calls from your creditors is never a good idea, always keep a clear and calm. Get in touch with them as early as possible and explain to them, the extent of you debt the measures you are taking to get out of debt and to pay your creditors, if you call them, remember to follow it up with letters confirming what was said, keep copies of all letters, take down the person you speak with name, even their supervisors name (ask for their supervisors name right at the end once they have been helpful!!)
If your priority creditors are threatening to take court action or have started to take court action against you and you need a little time to sort out your finances, send them a holding letter explaining your problems. We would seriously advice you if you are at this stage then speak to a debt management company, we have even reviewed the best for you!
Step Five - Organizing your non-priority debts
How you deal with your non-priority debts will depend on whether you have any money left over from dealing with your priority debts and paying for essential household expenses like housing costs and food.
If you have money to spare
If you have money to spare, you may have several options for dealing with your non-priority debts.
You should weigh up the advantages and disadvantages of each of these options carefully. Get as much information as you can before making a decision and don’t sign anything until you are sure it is the best option for you. If you have any questions, get advice. These options are quiet varied and can be very niggly
You MAY have the option of (below), this list is not exhaustive, but we have included the most common and useful avenues:
making offers to creditors yourself
Asking Debt Management Company to make offers for you (best option by far!, takes away stress from you end and help you achieve desired results
Arranging a legal agreement with your creditors
If you have no money to spare
If you have little or no money left after you have done your budget and you have nothing of value to sell, then you have very little options available to you. Contacting Debt Management Company is the only real viable option. In most cases you will end up being declared bankrupt.
Please remember we are doing this because we have been there and know what is like. The companies we mention usually know us by our site, so be sure to mention our name.
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