Overcoming a personal financial crisis.

There are many ways we can choose to voluntarily create debt for ourselves. These include spending on credit cards, arranging finance to buy a new car and, of course, taking out a mortgage to buy your home.

We’ve come to accept these different forms of debt as an inevitable part of our lives. They are convenient as they allow us to pay for larger items in manageable chunks and, with the proper management, they don’t need to be a problem.

However, life is rarely straightforward. Regardless of how much you plan, the unexpected happens and you suddenly find yourself facing a personal financial crisis. What could you do to overcome this if it is happening to you?

The different causes of debt.

Unfortunately, finding yourself in more debt than you can comfortably handle is very easy and not always in your control.

You or a member of your family may have suffered a serious illness, your business suffers a downturn, your hours may have been cut or you’ve been faced with redundancy.

If you are already a homeowner, interest rates and inflation may rapidly increase, your home falls into negative equity or you are unable to sell due to unforeseen circumstances. You may have had to bail out other family members who are struggling or alternatively, it could be that your own spending habits have crept up to exceed your income.

However the debt has been created, it’s never a comfortable feeling but, the good news is that it is never insurmountable either. The trick is not to bury your head in the sand and hope it will go away. Taking action is the only solution to bringing things back under control. However, beware as the type of action you take is crucial to improving your finances or making them much worse.  

The temptation of short-term solutions.

Initially, many people turn to short-term or pay-day loans and overdrafts etc., to help buy some time and create a financial buffer. In some cases, these stop-gaps can offer an effective solution but for others, it’s a different story.

What was supposed to ease the problem can make it worse because of exceptionally high-interest rates and an inability to keep pace with the repayments. Missed payments and defaults can then affect your credit rating and suddenly, in the eyes of your bank, mortgage lender and other creditors, you have become an increased risk. The penalty for this is even more expensive loans in the future and, finally, refusal of further credit.

What are the consequences if you do nothing? 

First of all, never ignore your finances. People who find themselves feeling overwhelmed by debt very often suffer sleepless nights or even illness. Avoidable stress is caused by refusing to open letters from the bank, credit companies or even the tax office and then worrying about what they might say. If this sounds familiar, at some point you’ll be faced with two choices:

  1. Take control yourself before facing legal consequences.
  2. Have control taken away and face legal consequences.

Taking control yourself could take the form of contacting an organisation that specialises in helping people overcome the debt challenge. These include:

As well as offering moral support, they can advise you about Debt Management Plans or other methods of reducing the amount of debt you have.

Taking control could also include contacting a professionally certified financial planner for advice on budgeting, saving and investments. If it’s advice you need on improving your credit rating or reducing your outgoings by remortgaging, speak to us here at Deal Direct on 0800 048 8828.  

What steps can you take today to tackle debt?

Firstly, make your debts a priority and list the ones that will have the most serious impact if you don’t pay them. These include:

  • your mortgage or rent
  • tax, including VAT and council tax
  • gas and electricity
  • any fines from the courts

Secondly, make a list of your other debts that may include store or credit cards, unsecured personal loans and overdrafts.

Thirdly, assess any savings or investments you may have and consider using these to help pay your debts. Savings are always advisable; however, the interest rates earned on them are less than the interest rates charged on outstanding debt so use this money wisely.

Next, contact your creditors and tell them about your circumstances. If a company is in the business of loans or credit and they are reputable, they are also in the business of helping people through their financial difficulties. Don’t assume they won’t want to know because it’s good business practice to be as understanding as possible. The last thing they want is to lose your future business once you are back on your feet.

Taking back control.

Getting a clear picture of your finances is the best way to regain control. Having listed your debts, the next step on the path is to get a proper overview of your incomings and outgoings. Use your bank statement to total what you have coming in on a monthly basis versus what’s being spent.

Having this information can help you decide your next move.

It could be immediately obvious to you where unnecessary overspends are happening and how you can cut back. You can use this information to create a budget that helps to bring spending down. You could also shop around for better deals on everything from your mortgage and car insurance to your phone charges. It takes time but there are a number of services available to help you. With remortgages, for example, you could use our online calculator that would give you an idea of how much you could save within just a couple of minutes.

Having worked out your budget and where any savings can be made, you could then use this money to begin paying off your debts. Having paid your mortgage or rent, you can then turn your attention to your credit cards etc. Paying off the one with the least outstanding sum on it first will give you a psychological boost by quickly ticking that off your list.

The light at the end of the tunnel.

Options are always available and once you’ve come through the other side of debt, a good thing is that you can use what you’ve learned in the future. While expert advice and assistance are available to help you bounce back from financial adversity, you can continue to help yourself by shopping around, making sure your payments are made on time and keeping a watchful eye on your credit rating.

For assistance with a financial review or advice on cutting costs with a remortgage,

contact Deal Direct on 0800 048 8828.  

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Article published: Tuesday, October 23, 2018
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