Bev Budsworth MD of The Debt Advisor Ltd based in Old Trafford, Manchester was live on air with Adrian Chiles at 5 Live talking about problem debt at 11.40 am on Tuesday 27th December 2016.
Consumer debt has increased by over 7% in the past 12 months. There is real concern that millions are struggling with problem debt.
DEALING WITH PROBLEM DEBT
Consumer debt that is debt which is not secured on assets such as property or cars has increased from:-
September 2012 £158.00BN
September 2015 £177.30BN
October 2016 £190.13BN
That means consumer debt has increased by £32.13 BN in the past 4 years and that also means on average household consumer debt has increased from £6,005 to £7,042.
WHEN DOES DEBT BECOME UNMANAGEABLE?
The best way to explain is to use an example. If your total unsecured debt is say £20,000, your contractual payments or the minimum you can pay without ending up in default is likely to be around £600 per month (based on payments being around 3% per month).
Compare that with your surplus remaining on a monthly basis when you deduct your share of household and private expenditure from your take home pay or net earnings. Do not at this stage include your debt payments on your £20,000 of debt.
How much is left? If this is a lot less than £600 you have problem debt and need to look at ways in which you can either make sure you can afford your debt payments or look to reduce your debt payments.
CAN I REDUCE YOUR DEBT PAYMENTS?
Yes you can with the agreement of your creditors but it is likely to effect your credit rating. It’s important to consider your priorities:-
Question: Do you want to preserve your credit rating at all costs? If the answer is yes then you need to look at:-
- Using savings to clear debt
- Consolidating debt using an unsecured loan. This is likely to be difficult as most unsecured lenders will not lend more than £15,000 without security
- Consolidate debt with a secured loan – check to see how much you will pay over the full term of the loan.
- Consolidate by remortgaging. Again spreading your debt payments over the balance of your mortgage will mean you are likely to pay sums much higher than your actual debt level
Warning: This only makes sense if you have a good credit rating and you can refinance at a reasonable rate of interest. Taking on a loan at 50% APR could end up costing you way more than your debt at the end of the day. These are the type of interest rates chargeg by sub-prime lenders and where they quite often will want a guarantor. This could seriously jeopardise a relationship with the person you are asking to act as guarantor.
Question: Have tried to refinance but cannot due to your poor credit rating or lack of income and/or
You want to end up with paying an affordable sum to your creditors each month without taking on additional debt?
This can be achieved by setting up a debt management plan or an Individual Voluntary Arrangement which will also allow you to write off the debt that is not repaid at the end of your IVA (as long as you have met your obligations).
Warning: All debt solutions need to be carefully considered as there are pros and cons to all solutions including Debt Management Plans, IVA’s, Bankruptcy, Debt Relief Orders or dealing direct with your creditors.
Further information and useful tools on dealing with your creditors is available at www.thedebtadvisor.co.uk. You can speak to a member of our team on 0800 0851 825 who are generally available from 9.00 am to 8.00 pm weekday Monday to Thursday, Friday 9.00 to 5.30 pm and Saturday 9.00 to 1.00 pm. The Debt Advisor Ltd is a commercial organisation and fees will apply if we are able to help you with a debt solution.
There are organisations that provide debt solutions on a free to client basis and more information is available through www.moneyadviceservice.org.uk. Their contact number is 0800 138 7777. Calls cost no more than to a standard UK wide number.