If you are really serious about your goal to reduce your debt, you’ll have to scrutinise the methods by which you manage money and shop. There are so many tempting ways to spend money unwisely but you will never reduce your debt unless you maintain consistent discipline with spending and saving. You might have just recently seen the need to reduce your debt because you realize that it is snowballing. Here are some areas to focus on that will help you reduce your debt.
Stop going deeper into debt before you work to reduce your debt. Getting off the credit cards is somewhat like quitting an addiction. When you have finally kicked the credit card spending habit and begun to reduce your debt, you’ll wonder why you ever got into this situation in the first place. Today people have debit cards with major credit card logos and there really is no need for the plastic loan instrument. Even if your checking account runs low, it is better to utilise overdraft protection rather than accumulate interest and make no progress to reduce your debt.
Earning more than you spend is a very effective way to reduce your debt. You have to stop utilising credit cards as an extension to income for making ends meet. This requires finding creative ways to supplement what you already make. You can find a part time job, do some freelancing on the Internet, sell stuff at a car boot sale or sell unwanted items on the bidding sites. Of course cutting unnecessary expenses is another way to increase the power of your present income and reduce your debt.
Reduce your debt by finding new ways to shop. Don’t buy so many pre-cooked items the next time you go to the grocery store. You’ll save money that can be used to reduce your debt by learning to cook your own meals using fresh ingredients. This is also much healthier for you in the long run. Also remember to never go shopping at the grocery store when you are hungry because you will probably end up buying extra items not on your list.
Cutting back on unhealthy habits is a sure way to increase income and reduce your debt. Smoking is a very expensive habit in terms of both the price of cigarettes and the effects it has on your health. You don’t want to end up with high health care bills while you are trying to reduce your debt. People who smoke typically catch more respiratory illnesses requiring more visits to the doctor. Likewise alcohol is very expensive in terms of buying the product and the time wasted consuming it.
Learn to walk away from buying things you know you should not. This is a critical strategy to learn in order to reduce your debt. When you know something is out of your budget, do not buy it. Product vendors have all sorts of gimmicks to get you to buy and they really are not interested in seeing you reduce your debt but you must resist. Resist even if they are giving away free prizes just for watching one of their demonstrations. Never buy on impulse and sleep a night before making a decision. Also never carry your credit cards to avoid impulse buying and you will begin to reduce your debt very quickly.
If you didn’t already know it – debt management is a huge growth industry. There are more of us experiencing debt, and there are more of us who are experiencing the pain of repaying that debt. As with all growth industries though, there are some who are involved in debt management who have less scruples than others do. For this reason, it is always helpful to keep one eye open for some of the pitfalls you may come across in debt management.
Pitfalls of using a credit/debt counseling service in debt management
It should be stated at the outset that most credit/debt counseling services are reputable. However, there are those who make their living help to manage the debt of defaulting debtors – and they do little to “help”. As such, if you are thinking of seeking the assistance of a credit/debt counseling service, keep in mind the following:
- Always try to use a non-profit credit/debt counseling service.
- Make sure the credit/debt counseling service is registered.
- Check that the debt being managed by your credit/debt counselor really needs to be managed. The reason you need to do this is because most credit/debt counselors who are not non-profit will charge you a commission and monthly fee on the overall debt being managed; therefore they have an incentive to boost your total managed debt amount.
- Make sure that your credit/debt counselor is working in your interests, not your creditors; for example, have they tried to obtain a reduction (sometime known as “haircut”) on your interest rate and outstanding interest repayment amount?
Pitfalls when doing your own debt management
If you decide to manage your own debt, rather than using the services of a credit/debt counselor, make sure that you keep an eye on the following:
- You are not paying any hidden fees for restructuring your debt or making early repayment of your debt;
- That the overall Annual Percentage Rate of the interest repayment is less than you already pay;
- That any security you provide is not going to be lost.
- Where you consolidate debt, that by putting all your eggs in one basket you are not giving your new creditor complete power over your financial affairs; for example, what happens if they call-in the refinanced loan? If you have lots of creditors, it could be harder for your creditors to achieve this.
- That your overall total repayment amount is not going to be significantly higher than if you continue paying the debt now – albeit in areas. This should be carefully reviewed even if your monthly repayments are significantly less. For example, if you now pay £1,000 per month for 1 year, you’ll end up repaying less than if you have to pay £500 per month for 3 years. Although the second system may sound more attractive when looking at bottom line, when you consider the total period you have not actually done yourself any favors.
Whatever you decide to do, please make sure that you have at least one conversation with your local consumer affairs bureau before you embark on your debt management program to get some guidelines of whether or not you are doing the right thing.
A trust deed is employed in Scotland and is a voluntary but legally binding formal arrangement between a debtor, a trustee and their creditors. A debtor, an individual who often has a very large sum of debt they need to clear, volunteers to transfer their assets to a professional Insolvency Practitioner, known as a trustee. It is then the responsibility of the trustee to administer these assets between the creditors.
A Trust Deed represents an alternative to sequestration and is a far less formal process. It can also enable individuals to avoid some of the legal aspects which follow from being made legally bankrupt, as is the case with sequestration.
Advantages of a Trust Deed
The main advantage of a Trust Deed is that it lessens the stress on the debtor. Because all correspondence and creditor queries go through the trustee, the debtor is no longer forced to deal with them all. Therefore, a trustee needs to be someone who is dependable and reliable.
It gives the debtor control over the situation rather than the creditors. A Trust Deed is also a much cheaper and far more flexible option than segregating your assets to pay off your creditors.
As long as specific requirements are met, a Trust Deed is able to be documented in the Registrar of Insolvencies and deemed ‘protected’. This means that all creditors, whether they agreed to the terms or not, are unable to petition or try any other method to retrieve the money that is owed to them, as long as the debtor adheres to the Trust Deed terms.
The duration of a Trust Deed is fairly short compared to many debt management options and the debtor will be free from their debts approximately 3 years after the date it was granted.
Disadvantages of a Trust Deed
Once a Trust Deed has been granted, but not ‘protected’ it only binds those creditors who agreed to the terms and therefore it means than any other creditors will still need to receive their payments. Therefore, those creditors not bound by the Deed are still able to petition for the debtor’s sequestration. As a result, if a home owner is unable to pay their unbound creditors in full via another source they may be forced to sell.
One condition of your Deed becoming ‘protected’ is considers all of your property, and any property the trustee holds may be sold by them should it be in the interest of the creditors. Your trustee is also able to file for your sequestration if you are unable or unwilling to co-operate with them. Additionally, it may appear that your trustee is working with your creditors best interests in mind as they are able to sign for your petition if they feel it would be a better option for them.
Going through the process of a Trust Deed will result in the debtor being unable to hold the Director position of a limited company, additionally; several other public offices shall also be off limits.
For help with getting a trust deed please contact us here
Are you in the position where there is a chance of losing your home or your car? Perhaps you’re falling behind with settling your bills, debt collectors are knocking on your door and creditors are harassing you for payment…
Take heart. You are not the first (nor the only) person facing such a financial crisis. Regardless of whether your current situation was caused by job loss, sickness or overspending- being in this position can seem to be a long, dark road with no end or solution in sight. The reality is that this state of affairs can be overcome and that your situation does not have to deteriorate any further.
One of the first things you can do to bring matters under control is to take a hard-nosed look at your cash flow- how much money do you bring in and how much money is flowing out? Write down your total income from all sources combined, and then make a list of all your fixed expenditure (Expenses that do not vary from month-to-month such as repayments on your vehicle, insurance premiums, mortgage payments etc.) Next item would be variable expenditure and here you’d include all expenses that are not fixed (like dining out, entertainment, clothing, etc.)
Do not neglect any item of expenditure, even if it’s a small amount. Be as precise as you can. This will give you an immediate and exact overview of where your money is going to every month. Obviously, there are the indispensible expenses and those are priority number 1. Assign priority scores to the rest of the items. The object of the exercise here is to be sure that all of the basic necessities like food, your house, health, children’s education, insurances, etc. are covered.
You will find a wealth of information on budgeting and managing your money in libraries and bookstores as well as on the internet. There are also plenty of computer programs available that relate to money management. Most have ready-made features to set up and maintain a budget, keep track of your check book, bank account’s and credit cards.
Many people are reluctant to do the following, for very obvious and understandable reasons: If you find yourself in a financial tight spot and unable to make all payments contact your creditors immediately and inform them that you are having difficulty meeting your scheduled payments and inform them of your reasons for having this problem. Most will be happy to co-operate with you and to revise your repayment commitment to a level that is achievable. Do not wait until your account is seriously in arrears and you face having to now deal with a debt collector. If that point has been reached, it means that the creditor has abandoned hope of finding a settlement with you and has resorted to handing over your account to a debt collector.
A good credit counsellor will be able to assist you with quality advice on money management and coping with debt, as well as guide you through setting up a budget and most often offer educational materials and workshops. Trained and certified debt counsellors are knowledgeable on subjects like credit, debt and money management. A good counsellor will sit down with you and do a detailed analysis of your financial situation, with a view to developing a personalised program to solve your financial difficulties. You can expect the initial consultation to last for about an hour. Follow-up sessions may also be suggested.
Each of us knows the feeling: it’s month end, we have a handful of bills to pay, have to go to several different banks and post offices to pay them, and all the time we are worried that we’ll pay the wrong amount to the wrong creditor. If only we could arrange our debt management a little better, our lives would be just so much easier. But, the fact is that your debt management need not be overly complex; provided that you arrange the management of your debt in a sensible way. The following are some useful tips on how best to control your debt management:
1. Debt Management – The Standing Order
Nearly all creditors will allow you to make a monthly standing order payment to repay their debt. Although paying your debt by means of a standing order doesn’t mean that you reduce the number of creditors you have, it does make the day-to-day running of your debt management so much easier.
2. Debt Management – The Direct Debit
Like the standing order, the direct debit is a monthly payment that you agree to make to your creditor. However, unlike the standing order, a direct debit is not for a fixed amount each month; but, rather, is for all outstanding debt you have as of the day the direct debit is due. As such, direct debit debt management is not particularly popular, it’s seen as messy – and if the creditor takes more than you accounted for, it becomes very difficult for you to survive the remainder of the month on the money you have left.
3. Debt Management – Online Banking
A very popular method of debt management these days is to open an account with a bank that lets you do all your banking and debt management via the internet. This way you can arrange to pay all your bills on time, without having to leave the comfort of your home or office, whilst still having control over the debt management process.
4. Debt Management – Reduce The Number Of Creditors
If part of your debt management problem is the sheer number of creditors you have, why not think about reducing this number of creditors by means of consolidating your debt. For example, if your have 3 credit cards, why not just make this one credit card debt by paying off the other 2 credit cards using the balance on your third card? Alternatively, depending on the level of savings you may obtain, why not consider paying off your credit cards altogether by asking your bank to provide you with a personal loan. Then all you need to do is to arrange to pay off your bank.
As you can see then, debt management strategies do not need to be too difficult, you just need to give some thought as to how best to arrange your debt management. In this regard, it is probably best that you do not arrange your debt management program where you are walking around the high street at the end of the month with an envelop full of money trying to find the easiest way to pay back each of your creditors!