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How to deal with debt

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By Yvonne Hignell, Care and Support Services Director

At the end of 2016, people in the UK owed a total of £1.508 trillion (The Money Charity) – that’s the equivalent cost of filling up your car with over 854,000,000,000 litres of petrol or buying over 71,000,000 brand new Ford Fiestas.

No-one wants to get into debt, but sometimes it’s difficult to avoid it. It could be you bought a house, had to replace your car or lost your job. Whatever the reasons, the steps to address your debt are the same.

Before we start

Please contact us or your nearest Citizens Advice right now if you;

  • Have received court papers;
  • Are about to be evicted;
  • Are expecting bailiffs.
  1. Do your research

First, you need to work out how much you owe and where your debt has come from. Read our budgeting guide to find out more about investigating your finances.

You’ll need to work out:

  • Which are your priority debts? These are the most important debts that need to be dealt with first, such as Council Tax and secured loans. You can find out more about identifying these on our dealing priority debts sheet
  • How much you can afford to pay back each month (remember to allow enough money for household bills and groceries)
  • Where your debts have come from. Are they for big purchases such as a house or car, or have you spent on your credit card?
  • Who you owe money to (these are known as your ‘creditors’)
  • How much you owe to each creditor
  • For each loan find
    • Your account number
    • The credit agreement that you signed

If you are unsure who you owe money to, you can go to Stepchange, who can help you work this out and negotiate on your behalf.

Before you go about looking at options for reducing your debt, it’s worth looking at your credit report. You can get a copy of your statutory credit score for free by signing up to Clear Score. If you’re concerned, you can read our advice on improving your credit score.

If you have a loan then it is worth checking to see if you were mis-sold Payment Protection Insurance (PPI) and can claim the money back. Money Saving Expert has a useful guide to PPI loan insurance that can help you work out if you were mis-sold PPI.

  1. Look at options for reducing debt

If you have a good credit rating, see if you can shift debts with a higher interest rate onto a personal loan with a lower rate. You may also be able to borrow on a credit card using a ‘balance transfer’ offer. Some of these offer 0% interest. Sometimes it can work out cheaper in the long-term to move your debts into one place. However, never borrow at a higher interest rate in order to pay off debts – this will only make your debt larger.

If you have a poor credit score and can’t get a personal loan at a good rate, then an alternative to this is to look at joining a credit union. These are independently run local organisations that offer loans, savings and current accounts to people who may not otherwise have access to financial products.

Although payday loans can seem like an easy option, they charge high fees and their steep interest rates (often over 1,000% APR) mean that if you don’t pay them back quickly you could find yourself in trouble.

  1. Negotiate

If you found that those options failed to reduce your debt or you can’t afford to pay, then you can look into negotiating.

You can find more information about negotiating with creditors from Citizen’s Advice.

You can also receive further advice and support by contacting organisations such as Stepchange, The Money Advice Service, National Debtline and PayPlan.

  1. Look into other options

For more serious debt challenges, there are a number of options available, including Debt Management Plans, Individual Voluntary Arrangement or Debt Relief Orders. You can find out more on the Government’s website.

Support from Ben

If you are feeling overwhelmed or confused about money, then you can always turn to Ben. You can call our free, confidential helpline on 08081 311 333 or use our online chat. We are open Monday to Friday, 8am to 8pm.

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Posted in Blog