Government Debt Advice – What are the Guidelines?
Introduction
One of the unfortunate side effects of debt is that it induces stress and, when stressed, we have a tendency to make irrational, spur of the moment decisions, or worse still, to do nothing at all and hope that the problem will go away of its own accord. It won't of course, so it is important for us to recognise that we have a debt problem in the first place and, having reflected on the problem, to make calm, calculated decisions as to what to do about it. Recognising a debt problem or an impending debt problem is not too difficult if you are honest with yourself; if you are constantly short of cash, "max out" your credit card(s) and operate your bank account within a few pounds of your overdraft limit, the chances are that you already have or soon will have a debt problem. There is no longer the stigma attached to debt that there once was – every adult in the U.K. owes an average of just over £30,000, including mortgage loans – and taking a conscious decision to tackle your debt will, in itself, make you feel calmer, more in control, and more positive.
Managing Debt
What you can do to tackle any debt problem is really a question of degree. It may be that you can improve your budgeting by examining your expenditure over the last month or two to see where your money is really going. Even small items, such as takeout coffee or lunches can soon mount up if you spend money on them every day, and you may be able to eliminate some, or all, of these to improve your cash flow. It may also be, of course, that you have larger, more serious debts – mortgages, credit cards, personal loans, etc. – which require a little more in the way of organisation and prioritisation on your part.
Essentially, any debt that can result in repossession, eviction, bankruptcy or any other serious legal action against you should be treated as a "priority" debt. Such debts may include mortgage or rent arrears, which can result in the loss of your home and the pursuit of any further liabilities by your mortgage lender or landlord, tax arrears, which can result in bankruptcy or imprisonment, and utility bill arrears, which can result in disconnection of basic amenities such as gas, electricity and water. These debts may not be your largest, but they are the most serious in terms of repercussions if you fail to pay.
That is not to say that other "non priority" debts – credit card arrears, loan arrears, benefit overpayments, etc. – are not without repercussions if you fail to pay them. Indeed, you may be taken to court and ordered – via a CCJ, or "County Court Judgement" – to pay what you owe. This is undesirable insofar as it will adversely affect your credit rating and your ability to obtain credit in the future, but is not in itself, anything to be too worried about. A court hearing – which you normally do not need to attend, unless you want to – will be held, during which the amount of money that you can reasonably afford to repay each month will be determined. Provided that you abide by the court order, your home and other assets are safe, but if you do not, bailiffs can be used to seize your property, which is sold to raise cash to pay off your debts.
One solution – but not the only solution – to debt problems is taking out a new, single loan known as a "consolidation loan", which is used to repay all of your existing debt. This may allow you to regain control of your finances in the immediate future by making a single, lower monthly repayment to a single creditor, but you may end up paying more interest overall over the longer term of the new loan. Administration fees and charges may also apply. Other alternatives include borrowing money from friends or relatives, making the best use of the credit options you already have – credit cards, overdrafts, etc. – or approaching your existing creditors to see if you can renegotiate repayment terms.
Whichever solution you may think is applicable to your own financial circumstances, it is worth seeking independent, impartial advice – much of which is available completely free of charge – from the likes of the Citizens' Advice Bureau, National Debtline or the Consumer Credit Counselling Service (CCCS). All of these free services operate websites and are contactable by phone, email, in writing or in person.