How to cope with Personal Debt

Ed Wilkinson -

Dealing with personal debt in the UK can feel overwhelming, but with the right approach, you can tackle it systematically. Here are some steps and considerations to help you manage and reduce your debts:

  1. Acknowledge the Debt: Recognize that there's a problem and commit to addressing it. This is the first and most crucial step.
  2. Create a Budget:
    • List all your income sources.
    • List all your essential expenses (e.g., rent/mortgage, utilities, groceries).
    • List all non-essential expenses (e.g., entertainment, dining out).
    • Calculate how much you can afford to pay towards your debts after essential expenses.
    • Aim to reduce non-essential expenses where possible.
  3. Prioritize Your Debts:
    • Deal with priority debts first. These are the ones that can have the most severe consequences if not paid, like mortgages or utility bills.
    • After covering priority debts, focus on high-interest debts, as they cost you the most over time.
  4. Contact Your Creditors:
    • Explain your financial situation to them. They might be willing to help by reducing interest rates, waiving late fees, or adjusting payment terms.
    • Consider getting a debt management plan (DMP). This is an agreement between you and your creditors to pay off all your debts over time.
  5. Seek Free Debt Advice:

In the UK, there are various charitable organizations like
StepChange,
National Debtline
Citizens Advice
Government backed support such as MoneyHelper & finally
Websites such as MoneySavingExpert
that offer free advice and can help you set up suitable repayment plans.

  1. Avoid Borrowing More:
    • While it might be tempting to take another loan or credit card to pay off existing debts, this can lead to a cycle of increasing debt.
    • If you do consider consolidating your debts, ensure the new debt comes with more favorable terms and that you can afford the repayments.
  2. Consider Formal Debt Solutions: If you're struggling to repay debts despite best efforts:
    • Debt Relief Order (DRO): Suitable for those with relatively low levels of debt and few assets.
    • Individual Voluntary Arrangement (IVA): A formal agreement to pay back creditors over time.
    • Bankruptcy: This is a serious step, as it can have long-lasting implications on your credit and personal life. It's a way of clearing debts if you can't find another way to pay them.
  3. Stay Informed:
    • Understand your rights and responsibilities concerning debt.
    • Beware of firms that charge fees for debt advice or management. Often, free services offer better value and guidance.
  4. Rebuild Your Credit: Once you start addressing your debts:
    • Ensure you're on the Electoral Register.
    • Use credit responsibly, e.g., by meeting all future credit commitments on time.
    • Check your credit report regularly to ensure it's accurate.
  5. Stay Positive & Seek Support:
  • Dealing with debt can be stressful. Consider joining a support group or seeking professional counselling if needed.
  • Remember, you're not alone, and many people have successfully overcome debt challenges.

Lastly, always ensure you're getting advice specific to your individual situation, as what works for one person might not work for another.

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