Financial difficulties are exceptionally common, and it’s also easy to end up in a downward spiral. With the rise of buy now pay later platforms and the general cost of living, many people wind up in debt, yet many are embarrassed about it.
However, it’s never too late to start paying off debt, and you can usually rectify the issue before the debt collection day arrives. Plenty of free financial counselling advice is available for those who need it, including this financial survival guide to help alleviate financial stress.
Let’s get to the following commonly asked questions:
Dealing with debt is usually a personal problem because it depends on the type of debt and size.
Many people get into debt when they cannot repay their car loan or other secured assets. In these cases, the debt collector can seize the asset – in this case, the car – as collateral. It becomes easier to pay off the remaining amount.
For unsecured debt, such as credit card loans or income tax debt, high interest rates may make it difficult to get out of the situation. The first step is to create a debt management plan that maps your way out of financial difficulty.
Financial advisers can help you create an action plan unique to your situation and needs.
If you have no savings and not enough money to pay off your debts, then there are still some debt management plans that can help. This situation is known as personal insolvency when you cannot pay your debts as and when they are due.
It is usually not an option to simply increase your income, but there are personal insolvency agreements that help you with managing debt.
The potential options include debt agreements between you and your creditors to pay the debts by way of small amounts each month, also called an individual voluntary arrangement. Alternatively, a debt relief order can help you discharge from your debts if you owe less than £20,000, such as if you took out a personal loan or are struggling with rising living costs.
You can also apply for emergency assistance and government benefits if you find yourself in tax arrears and cannot pay bills and council tax. Finally, a bankruptcy order may be the only option if you cannot pay off your debts.
Again, the suitability of each option depends on the type of debt you are in and how much you owe. It’s best to take heed of personalised financial advice.
Part of your debt management plan includes assessing the situation and determining the proper course of action. That said, you can follow five general steps to financial freedom.
Firstly, figure out where you stand financially. Are you in a debt crisis? A crisis is when you struggle to pay all basic outgoings, such as energy bills, and you also owe money on credit cards and other loans. Alternatively, it could be defined as your debts (excluding mortgage arrears) being bigger than your annual take-home pay.
If you are not in crisis, you still need to act and fix your credit spiral before it becomes serious. However, even in a crisis, it’s never too late to do something. The approaches to each scenario will be different, though, because one is more serious than the other.
Set a budget before you try to tackle debt, or you may end up back in debt again. Budget planning can give you an overview of your finances, which can help you pay your bills, repay your loan, and improve your finances going forward.
It’s also necessary to try and reduce your outgoings as much as possible. Check your direct debits and standing orders to see your monthly expenditures, and cut out any unnecessary ones, such as magazine and app subscriptions.
After cutting out the easy things, you might still need to make savings elsewhere. These ‘painful savings’ require lifestyle adjustments, including streaming services, gym memberships, expensive mobile phone bills, and branded grocery shops.
Although these savings are tough, they are often essential to pay off credit card debt and improving your credit score.
You may be entitled to certain grants and benefits, so check what you are eligible for and apply for it. You may also be able to reclaim interest on mid-sold payday loans, incorrect council tax payments, and more. Spend a little time researching to find out what money you can claim.
The final step is to contact a professional. Financial advisers can help you make sense of your credit rating and the debts you owe, helping you formulate a credit repair plan. Whether you owe tax debts or have worked up a consumer credit debt, a financial professional can help you rectify the situation.
The last thing you want when you’re in debt is to spend money on financial advice, but plenty of free services are available to help you.
If you cannot pay your debts, the creditor may issue you with a bankruptcy notice, which is a formal demand for payment. This is the most severe point of financial hardship, especially since filing for bankruptcy can give you a bad credit score in the future.
The worst-case scenario is a court summons. If you do not appear in court or respond to the debt collector, you may receive court judgments that order you to pay the money you owe.
Thankfully, it’s usually possible to avoid this situation by listening to financial advice about dealing with debt collectors and any correspondence they send you. Find more useful debt information here at WeMoney.
There are plenty of Australian financial counsellors that can assist you in dealing with debt. For example, the National Debt Helpline is a free service you can use by phone or internet; it’s open from 9:30 am to 4:30 pm Monday to Friday.
While the debt helpline is a great option, you can also contact a financial adviser who can provide personalised advice about potential repayment plans and how to save money. There are always multiple options for debt relief, but it’s worth finding a free financial adviser to start discussions sooner rather than later.
No matter your financial situation, it’s possible to rectify it. You can access free debt advice online that can assist you when the debt collectors come knocking or even start to fix the problem before it gets to that point. You can also obtain legal advice should you require it.
You need to create a debt management plan, set a strict budget, and contact a financial adviser. With these three steps, you can start returning to financial freedom and eradicating your debt.
If you enjoy using our app, please take a moment to rate it in the App Store. Your feedback in the past has tremendously helped us at WeMoney to improve the app to help it be the best that it can be. A massive thanks to each one of you for making that happen!
Disclaimer: The author is not a financial advisor and the information provided is general and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for investing, financial or other decisions. This information does not consider your investment objectives, particular needs, or financial situation.