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How to Stop Debt Spinning Out Of Control



Take an honest look at your debts and work out how much money you owe and how many lenders you have. Debt isn't necessarily a problem - taking on a mortgage debt, for example, is the only way most people can buy own a home. Problem debts are basically those you cannot afford to repay every month and/or don't know how you'll repay in full.

Similarly, having more than one lender isn't necessarily a problem - but it can be a hassle dealing with lots of different lenders. It can also make budgeting for your monthly bills more complicated.

If you calculate that you can comfortably afford to keep making your repayments, that's great! However, be aware that a change in circumstances, such as unemployment, a new addition to the family and unexpected expenses like repairs to your home, could make meeting your repayment obligations more difficult in the future.

If you want to stop your debt from spiralling out of control now, you could think about taking one or more of these three steps:

  1. Cut up your credit cards.
  2. Don't borrow any more money.
  3. Look into a debt solution.

If you would like to assess your current financial situation, why not take a financial health check online?

For more advice on coping with debt, just follow the link - or read on and find about three debt solutions.

Debt consolidation

Never take on more debt than you can afford. However, if you're dealing with more than one lender, you might enjoy the simplicity of dealing with one lender only. A debt consolidation loan can allow you to put all your debts in one place and could lower your monthly payments.

You may pay more interest overall, though, if you arrange to repay your debt consolidation loan over a longer period. Debt consolidation loans are only suitable for people with a regular income who can afford to keep making repayments for the full length of the credit agreement.

Debt Management Plan

A debt management plan is a way to tackle your unsecured debts head on. You could negotiate new arrangements with your unsecured lenders or you could get help and advice from a debt management professional, but either way, your lenders would be asked to accept lower payments. If they agree to the new arrangements, repaying your debts will cost you less every month - and lenders may agree to freeze interest and charges as well.

Debt management plans are for those who have significant debts that they are struggling to repay and who need to reduce their monthly payments. 'Defaulting' on your original repayment agreements will show on your credit score for six years and you may have to pay more interest overall if you arrange to repay your debts over a longer period.

You should only enter into a debt management plan if you think you'll be able to keep making monthly payments for the length of the plan. If you are unemployed and/or cannot realistically hope to repay what you owe within any kind of reasonable timeframe, you may need to consider bankruptcy.

IVA (Individual Voluntary Arrangement)

An IVA is one way to deal with significant problem debts and can be a real alternative to bankruptcy. However, it is a form of insolvency and will be recorded on your credit record for six years.

If they can reach an agreement with their unsecured lenders, an IVA can help people who have significant debts that they cannot pay back in a realistic timeframe, but who can commit to keep making repayments - as much as they can afford - for (usually) five years.

At the end of five years of repayments, the rest of your unsecured debt will be written off, as long as you've upheld your side of the agreement. However, you will probably be asked to release equity in your home if you're a homeowner.

If your debt is spiralling out of control or you believe it may do so in the near future, speak to a debt specialist who can tell you more about the options available to you.