Debt Busting For Beginners

| February 21, 2013 | 0 Comments

Debt Bursting

It’s easy to think that you’re the sort of person who never gets into debt, but circumstances can change and you could end up in exactly the situation you have never dream of experiencing. That’s why it’s useful to know what your options are if you do find yourself owing money to a third party.

Small debts

Small debts (anything from £10 to £500) are pretty easy to deal with – or you would think. They’re actually only straightforward when you pay them off as quickly as possible and in full, which isn’t always feasible depending on your situation.

For example, a small debt can arise if you need to pay your energy bill by a certain date, but won’t have enough money until you get paid – which will happen after the bill’s deadline. Many people would handle this by simply cutting back on other expenses to cover the cost, but if you’re already fully stretched, you may need to consider other options, such as selling things you don’t need or taking out a text message loan.

Just be careful if you do choose to pay off a debt by getting even more into the red. This can be worthwhile if the overall cost of doing so is less than by letting interest accrue on the original debt, but it can cause something of a debt spiral if you end up being unable to repay this latest bill on time.

Large debts

Large debts – from £500 upwards – can be trickier to deal with, although it’s worth noting that many people accumulate significant debts simply by failing to pay off smaller ones. Some consumers with particularly high debts owe more than one person or organization, making the whole process of repaying what’s owed even more difficult.

There are a few steps you should take if you find yourself in this situation:

• Work out exactly how much you owe and to whom
• Identify the most urgent debts – i.e. those that will have significant consequences if they aren’t paid off in full or on time, such as missed mortgage repayments or a final demand from your energy company
• Look at how much you have available to contribute towards these urgent debts
• Come up with a plan to cover any shortfall
• Repay your urgent debts and look at tackling non-priority debt in the same way as above

If you still struggle to make your repayments and there’s a chance your creditors may take court action, it’s time to seek expert help. Organizations such as the Stepchange Debt Charity (formerly the Consumer Credit Counseling Service) and Citizens Advice can offer useful advice and help you decide what to do next – it’s worth looking at their websites for guides to dealing with unmanageable debt.

Depending on your situation, your options may include applying for a debt relief or administration order, signing up to a debt management plan, entering into an individual voluntary arrangement (also known as an IVA) or, in extreme circumstances, filing for bankruptcy. You should always think very carefully before going down any of these routes and ensure it really is the right thing to do.

While the path to paying off large debts in full can be long and hard, taking the best course of action sooner rather than later will be helpful in getting back into the black in the least painful way possible.

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Category: Debt

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