Tips to avoid the debt trap

As the recent recession continues to claim more and more jobs, people are becoming increasingly aware of the impact redundancy can have on their financial situation.  Should you find yourself with serious debt problems, we can help with both general advice and more formal debt solutions.  But, before you get to that stage, there are steps you can take to avoid the debt trap.

Of course, avoiding debt in the first place is easier said than done, but there are some rules to follow that might help:

  • Manage your credit cards

It may seem obvious but don’t spend more than what you can afford each month.

If you have a credit card, shop around to find the best interest rate remembering that the interest rate you’re offered may only apply for a limited time.  Keep a note in your diary of when the promotional rate finishes so you can shop around and find another deal before the low rate comes to an end.

  • Debt consolidation

Debt consolidation involves taking out a single loan to pay off your creditors so that you’re only paying one monthly repayment to one creditor.  It can be a good way to simplify your monthly finances and may save you money in the short term as the repayment amount may be lower than the combined repayments you’ve been paying to numerous creditors.

  • Remortgaging

If you have a mortgage on your home, another way to manage debt is to remortgage to release some of the equity you may have.  Borrowing a larger amount of money than is owed on your existing mortgage, allows you to pay off any other debts.  However, it may mean you will end up paying more interest on your mortgage.

  • Saving or clearing debt?

Most people recognise that paying off debts is the top priority before starting to save money because the interest rate on the cost of debt is higher than you will recoup on savings.  So pay as much as you can to your debts.  Prioritise in order that you pay to the debts with the highest interest rate first.

Follow these tips and avoid getting into a spiral of mounting debt.  If you do find yourself in financial difficulty, talk to us.  We can help with debt advice or a more formal solution if that is what you need.

Sequestration…..is it an option for me? (Part 2)

In the first part of this article we looked at what sequestration is.  In this second part, we explain the impact of sequestration and things you need to know before you decide to go ahead with this debt solution.

If you are sequestrated, your creditors can no longer take legal action against you and once discharged from your sequestration, you will no longer have to make any further payments towards your debts.

However, there are things you must be aware of:

  • Your sequestration will be in the public domain

Your sequestration details will be published in the Edinburgh Gazette, the Scottish equivalent of the London Gazette where bankruptcy details are published.

  • Your credit rating

Although sequestration can free you from debt, your credit rating will be impacted for many years after and you may therefore find it difficult to get credit in the future.

  • Even after 1 year of sequestration, you may still have to make contributions

You can expect to be discharged after 1 year in sequestration; however, you may have to continue to make contributions for up to 3 years depending on your surplus income.

  • Your home may be at risk

The Trustee is interested in any equity you have in your property that can be paid to creditors.  Equity is the difference between the market value of your property and the remaining credit to be paid on your home, for example, your mortgage.  The amount outstanding on the mortgage will be established by a house valuation to determine the sum that can be paid to creditors.

  • Other assets may have to be sold

Other assets you own are looked at on an individual basis and may be sold depending on their value and their use.  Household goods and trade tools are rarely sold by the Trustee providing they are not overly expensive.

There are benefits of sequestration as a debt solution if your circumstances fit.  If you are considering it, you must weigh up your options and the impact it will have on you and your family.  It could be you qualify for a Protected Trust Deed instead which may prove a better solution for your circumstances and result in less severe financial restrictions.  However, if this avenue has been explored and you opt for sequestration then advice and help is available from us.

 

Sequestration…..is it an option for me? (Part 1)

Today, 391 people will be declared bankrupt or insolvent.  That’s one person every 51 seconds during the working day, according to Credit Action.

You may have heard of the word ‘bankruptcy’ but did you realise that if you live in Scotland, the legal term for bankruptcy is sequestration

In this first article, we look at what sequestration is and we’ll follow that up with the things you need to know.

So, what is sequestration?

If you are sequestrated, all your debts can be written off within one year.  It will remove the pressure you may be experiencing from your creditors (that’s the people you owe money to) by transferring your assets to a Trustee who has a duty to sell these and share the money made amongst your creditors.

What criteria do I need to meet?

  • You must live in Scotland or have lived there for the last 12 months
  • You can apply to the Accountant in Bankruptcy if you have debts of £1,500 or more
  • Your creditor(s) must have taken some action against you, for example, earnings arrestment, a Charge for Payment Order or a Statutory Demand
  • You must pay an administration fee of £100 to the Accountant in Bankruptcy

You can expect to be discharged from your sequestration after one year but it is important to know that both sequestration and bankruptcy are seen as last resort solutions.  However, for some people it can sometimes be the only solution to help you get on the road to financial recovery.

The next part of this article will highlight the things you must take into consideration if you are thinking about sequestration including the impact on your credit rating and your assets.

Credit Card Debt

According to Credit Action, research from moneysupermarket.com has discovered that at least 1 in 5 of us carries more than 3 credit cards and 17% of credit card holders use their credit card at least once a day.  So it is of little surprise that many of the customers who come to us for help, need a debt solution to help them cope with their credit card debt.

There are a number of reasons that people get into credit card debt including:

  • Not prioritising debts – pay your most expensive credit card debt first
  • Late or missing payments – charges for late or missing payments on top of your debt will just increase the amount you owe
  • Overspending – spend within your means; buying something after you’ve saved for it feels so much better than just putting the purchase on a credit card
  • Ignoring your debt – if you’re reading this, you’ve recognised you need to turn your debt around and have taken the first step to tackling your credit card debt

Whatever the reason, you’re not alone.  We have years of experience giving debt advice and helping people into debt solutions including protected trust deeds, debt management plans and IVAs to get our customers back on track to financial freedom.

Use our online enquiry form to see whether we can help you turn your credit card debt around.

Wealth, Health and Happiness

According to a recent report from Credit Action, every adult in the UK now owes an average of £30,228 including their mortgage – that’s 126% of average earnings.

The impact of these debts can go far beyond just affecting spending power and wealth, with relationships and health also being jeopardised.  And it’s not just one group of society that’s feeling the effect; the recent recession has brought these problems to a wider section of the population.

Statistics suggest that more couples have been looking to professional counselling to ease relationship problems caused by financial worries.  According to The Telegraph, there was a 59% increase in enquiries received by the relationship charity Relate’s advice helpline in 2008 compared with 2007, including twice as many calls related to money arguments.  These figures may well have increased in 2009/10 as the recession continued.

It has also been reported that the economic downturn can have an effect on health and can increase the risk of a stroke. 

Earlier this year, a leading psychologist reported that the risk of suffering real mental and physical health problems, including the likelihood of a stroke, is higher during a recession.

If you are experiencing debt problems, seeking professional debt advice is recommended.  There are a number of debt solutions designed with you in mind that will offer real help to turn your debt around and take the strain out of your financially-induced relationship and health worries.