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Debt Survival Kit

Tuesday, 4th January 2011

debt-survival-kitDebt survival kit – why everyone should have one!

Anyone that has previously struggled with debts will agree that it is often very difficult to get back in control especially if they are dealing with an aggressive or demanding creditor or debt collector.

Many borrowers complain of being bulldozed, bullied and intimidated into making payments they cannot afford, so why don’t we wise up and take those particular debt collectors at their own game? It’s relatively easy to do.

Start an action plan

All your lenders will ask what disposable income (DI) you have. DI is the amount of money you have left after deducting from your income all your reasonable and necessary living expenditure. As a guide see our IVA, bankruptcy & debt management expenditure guidelines

For example - you have an income of £1,500 per month and your living expenses BEFORE you pay your debts are £1,300. Your DI is therefore £200 which is the correct amount you should be offering for your unsecured debts and not paying them in full if you do not have the funds to do so.

Next work out what type of debts you have, for example, establish whether they are secured, such as a mortgage or unsecured, such as personal loans from the bank, bank overdrafts and/or credit and store cards. Make a list of whose names the debts are in, you, your partner if applicable and joint ones. Work out which of your creditors are priority what ones are a non priority creditor. Not sure what a 'priority creditor' and a 'non priority' is then see our Jargon Buster.

Then list what assets you have, your home if owned, the mortgage outstanding and what you think it is worth, then look at cars, jewellery etc:

Our Budget Wizard will help you work this out, it is free and covers your income, expense, assets, savings and debt making it very hard for you to miss anything important - this results in a complete understanding of all your finances.

Get a new ‘parachute’ bank account to avoid 'setting off'

Make sure any new account you open is not connected to any of the lenders to whom you owe money, for example Halifax and HBOS are under the same organisation. So if you opened a bank account with the Halifax but owe money to the Bank of Scotland then you run a serious risk  if you miss a debt repayment.

Both banks come under the banking group HBOS and this means that either bank can take money out of the account to pay off the other one and it’s called setting off.

There are  two banks that will offer you a basic bank account before you go bankrupt or if you apply as an undischarged bankrupt, they are Barclays Cash Card account and Co-op Cashminder

Know what creditors to pay first - Priority or non priority

You should pay your priority creditors before attempting to pay your unsecured ones.  Basically, just think that if you stopped paying can the lender take something away from you or cut off the service they provide and if so  that’s your priority creditor/lender.

For you to stay in control you need to tell the lender what you can afford and not what they want you to pay, which is why working out your DI as above is absolutely crucial to your survival.

In debt? Then know your consumer rights!

The Financial Conduct Authority (FCA) has detailed debt collection guidelines that all UK lenders must observe and they also apply to debt collectors that are acting for the lender or have purchased the debt from your previous creditor.

Therefore it would be a good idea to swat up on your rights and recognise when they are abusing the rules.  Just imagine that great feeling when you retort to an aggressive lender acting improperly that they are breaking the FCA debt collection guidelines.

Here are just a few of the most commonly flouted rules;

  • contacting borrowers  at unreasonable times and at unreasonable intervals
  • pressurising borrowers to pay in full, in unreasonably large instalments, or to increase payments when they are unable to do so
  • contacting debtors directly and bypassing their appointed representatives like the CAB

Know when to contact your lenders

If you already contacted your lender then I would say you in pretty good shape for the fight. Many debt advisers say as soon as you experience debt issues and know you are about to miss a repayment then contact the lender.

I would advise getting professional help first before you contact your creditors/lenders as this will ensure your expenditure has been worked out correctly within the industry guidelines for housekeeping, food and clothing etc:

Also research what options are available to you, such as bankruptcy, debt relief order (DRO), Individual Voluntary Arrangement (IVA), debt management plan or debt consolidation. More at Debt Solutions Explained & Comparison Table.

Know where to go if you need further debt advice

You could consider the commercial (fee charging sector) sector of the industry which has greatly improved of late, the downside being that they will charge fees some argue you get an improved level of service. See our fee saving debt calculator to see how much we could save you in necessary fees.

We have listed below 16 more organisations that are also 100% free to the consumer, don't forget we are as well!

Free debt advice agencies

Stay positive and don’t give up

If a creditor/lender refuses your offer of repayment or to stop the interest then reaffirm your efforts. Get them to give up and not you! Don’t borrow more money to pay off your creditors unless you have taken professional advice to do so.

Don’t be frightened to ask for specialist help and advice and ignore the problem. Hoping it will just go away is not the answer! Just remember: don’t be intimidated, threatened or bullied into making offers or promises you know you cannot keep. It is not a crime to be in debt, insist you are treated fairly and with respect.

 

 

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