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When debt gets out of control
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Debt solution to debt problems
Debt is one of those things that you never see coming. It is so innocent. So quite. Yet it is deadly. It is addicting. It will control you before you even know what is going on.
It sounds a little overdramatic. But it isn't. Debt is one of those things that flips on you. You have it in control one day, the next, it has you. Many of us realize that it is getting out of control, but we do... Read debt consolidation article
Control Debt
Most of the Americans deal with personal finances although they are quite loath to manage their finance for various reasons. It irritates to spend time, use math skills to improve the situation with the debts. Nevertheless to have genuine knowledge about one's finances is the only way to maintain and improve financial prosperity. The sooner you start controlling your debts, the less your debts wil... Read debt consolidation article
When debt gets out of control
DEBT is a problem that can hit anyone during their lifetime, often for reasons beyond their control, such as a losing their job or another unexpected life-changing event, and statistics show it is becoming a bigger issue than ever.
This debt comes in a number of forms, from mortgages and loans secured on your house to credit cards, all with widely varying levels of interest and all putting increasing pressure on people to cope financially.
Only this week, Citizens Advice UK warned that homeowners are at risk of losing the roof over their head because of unmanageable debt and revealed that 770,000 people had missed at least one mortgage payment in the last year.
This ties in with the most recent figures from the Council of Mortgage Lenders (CML) which revealed that the number of house repossessions in the first half of 2006 hit 8,140, almost double the 4,620 in the first half of 2005.
The rise in interest rates to 4.75 per cent in August put more pressure on homeowners, with a further hike predicted this year.
At the end of July 2006 the total UK personal debt was £1,237 billion, an increase of 10.5 per cent, or £105bn, over the last year. Of this total, secured lending on homes stood at £1025.4bn and total consumer credit lending to individuals in July 2006 was £211.9bn.
This situation is being exacerbated by lenders becoming tougher on debtors and too many people continuing to take the ostrich approach by burying their head in the sand rather than trying to get themselves out of a financial vicious circle.
Clearly, the ideal is to avoid getting into debt in the first place, but this is easier said than done with graduates, for example, leaving university with an average of £12,640 of debt last year.
If people are worried about their debt, banks are in agreement the best thing to do is talk to them about finances and see what they can do to help.
A Royal Bank of Scotland spokesman said: "We would always encourage customers who are experiencing any financial difficulty to contact us as soon as possible so we can provide the appropriate assistance."
Lloyds TSB Scotland adopts a similar line and recommend you alert your bank to any potential difficulties early in the day. Spokesman Glen McGill explained: "We've seen a noticeable rise in problem cases and an increase in the number of people missing payments and the level of bankruptcies over the past 18 months.
"We try to help in the initial stages and encourage customers to face up to the situation. Pick up the phone to someone or visit your branch to discuss such options as rescheduling payments or taking a payment holiday. We run a customer support scheme and are happy to arrange face-to-face meetings with advisers who can look at someone's entire financial situation."
It has become easier for someone to analyse all their finances, often with a debt adviser, to see where the biggest problems lie because banks now share credit information on their customers as part of their commitment to responsible lending.
A Royal Bank of Scotland spokesman said: "If customers have debts elsewhere, and it has become evident that they are unable to cope, we'll signpost them to free money advice organisations such as the Citizens Advice Bureau, Advice UK and National Debt Line. We're also one of the largest contributors to the Money Advice Trust to promote free confidential and impartial money advice."
In March, Lloyds TSB joined other major banks in agreeing to share all customer data - loans, credit cards, mortgages and current accounts - with the three biggest credit-checking agencies in the UK, Experian, Equifax and Callcredit.
James Jones, consumer affairs manager at Experian, said: "Until recently, banks only shared information on customers who had defaulted but they now make full customer data available. This is fine with new customers who automatically give their consent for information to be shared but historical data on existing customer can't always be accessed. This could be rectified by the expected Department of Trade and Industry consultation on responsible lending.
"People can order a copy of their credit report online at www.experian.co.uk for £2. If someone feels there are mitigating circumstances, such as a relationship breakdown, for any of the bad credit on their report, they can explain this in up to 200 words. Most lenders use computer-based credit scoring when assessing applications for credit but if any personal comments have been added the case will be referred to a member of staff rather than being automatically turned down."
If people do feel out of their depth with debt they should think carefully before opting for an individual voluntary arrangement (IVA), or a protected trust deed as it is officially known in Scotland. This is an arrangement between debtor and creditors to repay a percentage of the debt over the life of the IVA, normally three years north of the Border. At the end of the IVA, any outstanding debt is usually written off.
Peter Dean, managing director of advice firm The Debt Experts, explained: "While not suitable for everyone, protected trust deeds can be an effective and affordable route out of debt and we are seeing more and more people taking them up. For the past quarter, the number has increased by more than 47 per cent compared with the same time last year."
More people are opting for IVAs when they feel their debts have become overwhelming as an alternative to bankruptcy - seen as the last resort - but IVAs can have a long-term impact on someone's credit rating.
The Scottish Executive is reviewing the guidelines for protected trust deeds possibly to restrict their availability to homeowners, and while deeds or IVAs are the best option for some people, they should not be regarded as a panacea.
"Even after the IVA has ended, it will appear on your credit record. This can be costly as many lenders use someone's credit rating to determine the rates they charge. Also landlords and employers can check any public information held on your record," said Jones.
And people should be wary of companies who advertise heavily and promise to clear their debts through consolidation loans as these can come with a cost.
Dean explained: "People go to these companies which aren't independent and charge high fees to arrange a consolidation loan.
"These are often secured loans with higher than average interest rates that put someone at risk of losing their property. What someone is often better doing is remortgaging to release some equity in their property to pay off debts. If someone clears their credit card debts, they could be paying interest of 5 to 6 per cent rather than 20 per cent."
While debt is unfortunately an increasing reality for many people, there are many routes to take to avoid it spiralling out of control and places to turn to get free advice.
The message is - face up to the situation and talk to creditors about it as early as possible as they can often help.
Ten steps to deal with unmanageable credit CITIZENS Advice Scotland tips for dealing with debt:
1 Don't panic and don't ignore the problem, it won't go away.
2 Don't take out any further credit - you'll only get yourself in worse trouble.
3 Gather together all the documents you have about your debts and make a list of all the people you owe money to, how much you owe to each one and what type of debt it is (mortgage, council tax, fuel bill, overdraft, credit card, bank loan). You should do this for all your credit commitments, even if you're up-to-date with some accounts.
4 Work out your most important debts - these are the ones where the creditor has a drastic sanction like repossession (mortgage arrears), cutting off your supply (gas or electricity bill) or imprisonment (council tax, child support). You need to agree repayments on these debts first before tackling your credit debts.
5 Work out your total income from all sources (use either monthly or weekly fi gures - don't mix the two). You may be able to increase your income by checking you are paying the right amount of tax or claiming benefits. Seek advice from your local Citizens' Advice Bureau (CAB) if you would like them to check whether you are receiving all you are entitled to
6 Do the same for your essential expenditure. Don't include any repayments on your credit debts, but include the normal payments on your important debts.
7 See if there is any way you can cut down on your expenditure, but don't underestimate the amount you spend on essential items like food and fuel. Find out whether you can spread payments for fuel and water bills by budget schemes where you spread the amount over the year. This may help you pay your regular bills more easily.
8 Subtract your expenditure from your income - if you have any money left over, this can be split between your creditors. If you don't have any money left over, contact your CAB for advice about what you should do next
9 Negotiate repayments on your most important debts, then split any remaining money between your credit debts. CAB advisers do this by working out repayments according to how much you owe each creditor. This is called pro-rata distribution.
10 If at any stage you need help, contact your local CAB or visit www.cas.org.uk
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Tapping Retirement - Poor way out of debt
Q: I was laid off a year and a half ago. I got another job, but it doesn't pay as much. My husband and I are not able to keep up with our debt now. We have talked with a counselor, but unless my husband finds a part-time job, there is no help. Neither one of us is hardly able to work a second job as we are both in our late 50s. We have used some of our retirement money to try to keep up with our bills, and I have worked as much overtime at my job as I can. What is your advice?
A: It's not a solution, but it might help to know that you are not alone. A recent AARP Bulletin poll revealed that 53 percent of workers age 40 and over, and 30 percent of retirees, see their current level of debt as a problem. Many of these folks are one layoff or unexpected large expense away from where you are today. I want you to stop for a minute and consider what you have been doing. When you accumulated debt, you were, in effect, saying, "I need money today, so I'll borrow it from tomorrow's earnings." When the money from "tomorrow's earnings" failed to materialize, you made the same mistake again, this time with your retirement future. My first bit of advice is to stop using money earmarked for a future purpose to settle past expenses. You are going to need it later. Secondly, if you haven't stopped charging, stop now.
From a practical standpoint, working overtime as long as it is available is smart. If you qualify for time and a half, that will help even more. If earning extra income proves to be too difficult, I suggest you generate some cash by cutting expenses.
For most of us, the bulk of our monthly expenses is for shelter and transportation. At your ages, you and your husband might consider downsizing your home. If you are a homeowner, then you could use a portion of the proceeds of the sale of your current home to pay off your debt.
Transportation is the next area where you might be able to cut back. If you own two vehicles, consider downsizing or selling one. Savings on insurance, gas and a possible loan payment could add hundreds of dollars per month to be used for debt payments. Getting from point A to point B does not require a new vehicle or one with the most comfortable ride.
I am in your age bracket, and I know I feel the best when I am active and have something to look forward to. I'd suggest a second round of credit counseling. Tell the counselor you want a budgeting session and ask for someone skilled in that area.
If none of the above recommendations works, you may consider contacting a bankruptcy attorney. I would use this as a last solution, because I think you have something systemically wrong with your finances and a bankruptcy might only resolve a symptom, not the cause. Good luck!
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