Dealing with Debt: First Steps
Topic: Debt and Money Management

I mentioned in my last blog that there were (in effect) 3 scenarios you might find yourself in once you have dealt with the tough issue of recognising you have a debt problem and dealing with it:

1. ~ your wage covers all of your expenses and liabilities if you are careful
2. ~ your expenses and liabilities exceed you monthly income, but some budgeting will sort things out
3. ~ your expenses and liabilities exceed you monthly income by a large margin.

In this blog I am going to deal with scenario 3. I said in my last blog that in this scenario you might have to accept that a very poor credit rating is on its way and learn to live with it.~

Think about this for a bit. Taking a hit on your credit rating is not, in fact, that important, because you now have so much debt that you HAVE to stop obtaining any more debt unless there are clear reasons to take it on. For example, you may get a new job with more money but need a car to get to work – there is a clear justification on that one that is difficult to argue against and you might just want to have the credit secured on the car from a company such as Cash Drive ~ it can make perfect sense.

However, in general the rule is: NO MORE DEBT! You are going to stop using bank overdrafts, credit cards, store cards, store accounts and loans, so the fact that your credit rating will be in fact zero - will probably work in your advantage.

I am going to give you some advice now that normally would not be put in writing and which you should take advisedly ~ that is apply with caution.

If you DO NOT have credit facilities you DO need cash. That is why I suggested in my last blog that you should set up a new bank account and have all of your money paid in to and stop your direct debits and standing orders. Once you have done these things, you are now in control of your own money again. The bank cannot apply excessive charges for bounced direct debits if you have none. You can now choose who you pay and when you pay ~ and how much.

Now you can prioritise your payments. The ones that come to the top of the list are the ones that can inflict the most pain the quickest and they are in rough order:

• ~ Council tax (you can go to prison for not paying)
• ~ Mortgage (it will make sense to hang to your house as long as possible)
• ~ Utilities (gas, electric, water - dont want to lose these)
• ~ Any secured loans (especially on the house)
• ~ TV License (you can get a £1000 fine for not paying this)
• ~ Any hire purchases (where important purchases can be taken back e.g. furniture)
• ~ Credit cards & other unsecured debt

Obviously each persons circumstances will vary, but the above list is broadly in order.

Now comes the tricky bit. If you have habitually no cash then just stop paying for a month or two. Yes all hell will break loose, yes your letter box may seize up from over work and yes your telephone will never be back on the hook and it will be painful and there are risks associated with this advice. However, not paying for a month at least will allow you to start to build up a cash nest egg in your new bank account to deal with the credit free world you are about to enter.

The reason you will be told this is bad advice is because you will incur charges for late or no payment and your overall debt will actually grow for a while, which is obviously not good. However, the road we are about to go down will involve freezing the credit accounts which will make them unusable and so you need to have some cash ~ just to live.

The next thing to do is to get in touch with each creditor to let them know you are in trouble and negotiate a solution. This sounds a bit scary, but here is a ray of sunshine. When you cannot pay the creditors, they will be hard. They will send you hard letter warnings of solicitor action, credit rating problems etc. When they call you they will be even harder. They twist your words and hit you hardest when you are at your weakest. However, once you get a grip and come back to them with an honest appraisal of your situation and a way forward, you will (eventually) get a sympathetic hearing and co-operation to assist with solving the problem ~ providing you are serious about doing so.

More of this later.

Further Reading:
[http://www.cash-drive.co.uk]
[http://www.cars-and-money.co.uk]

Stop The Rot
Mood:  bright
Now Playing: Stop The Rot

Chances are the rot will stop you before you stop it. When the debt gets just too high and you start getting in to a situation of borrowing to pay off the debt, the time will come soon after when the rot will stop you and you can borrow no more either from common sense or from the fact that lenders draw the line for you. Either way it is time to stop. Perhaps you are reading this because you have decided to change your life for the better or because some one has decided for you – but stop you must.

By stop I mean stop spending! You have to draw the line. Cancel all nights out, trips, holidays purchases you have planned that can be cancelled and batten down the hatches.

By now, the chances are actually having cash in your pocket is a real problem. It is much easier to buy everything on card. You have to find a way to stop that now and get some cash into your pocket. You will need cash because from now on the cards will not be used.

It may already be too late and you may be running up large bills from the banks on failed direct debits or from unauthorised overdrafts. You are probably find that the money comes out of your account at the beginning of the month just as fast as it went in at the end of the month. We need to stop the downward spiral and stop it now!
Hopefully, you credit rating will not be entirely down the toilet as you may have been maintaining a large array of payments in fact your credit might be quite good. So if that is the case, open up a new bank account with a bank you have never used before. Take the opportunity to look for current accounts that might pay interest and companies that offer internet and telephone banking alongside normal services. Do not look for overdraft facilities even if they are offered without prompting, from now on money out = money in.

With the new account set up have your next wage paid into the new bank account.

Next cancel ALL of the direct debits or standing orders on your existing bank account(s). While you are doing this you can get a list of everything that is on the list. You might find you are paying out for services you didn’t even know you were paying for. It will probably be a shock.

You will need to put some time aside this first month to figure out what is what: what you owe and when each bill should be paid. This is something to consider carefully as you are now going to have to pay each bill personally one by one. As you are doing this, you may realise that either:

1 – your wage covers all of your expenses and liabilities if you are careful
2 – your expenses and liabilities exceed you monthly income.

Let’s take 1 first. This is good news as long as you have been realistic and have included all eventualities in this. That is, you do also need to eat and have some personal fun. As long as you have made an allowance for this within this assessment and income still exceeds expenditure, then it is clear you have stopped at the right time and have a good chance of sorting out your problems before too long.
If 2 is true than it is time to take some drastic action, because frankly you have some tough stuff to do now.

Okay let’s think about this, expenses and liabilities exceed income. Again we can break this down into 2 further scenarios:

a) the difference is marginal and some careful budgeting on the expenses side will bring things back into line.
b) There is a large gap between outgoings and incomings that cannot be dealt with by tightening of the belt alone.

So in scenario (a), we need to budget and stick to it. Two entirely separate things by the way. More of this in a later blog.

In scenario (b), we now need to find a way to handle our liabilities when we clearly cannot pay what is being requested. In this scenario one of the most painful things to accept in this society is that our credit rating is going to have go in the toilet and be flushed way. I will deal with this in more detail in my next blog in the next few days.

Further Reading: http://www.cash-drive.co.uk/ | http://www.cars-and-money.co.uk/

Getting Started

What is this blog about?

Well it’s about debt – tons of it!

In fact a huge mountain of debt which is in fact all around.
We might ask why it is that the UK now has in excess of £1.2 Trillion worth of personal debt – what is driving the ordinary Joe and Josephine Bloggs to run up huge debts that they know they cannot pay back?

We might argue it is an excessively materialistic, ‘I want it now’ type of society with shallow values that we live in – that might be the case.

In my own case I came out of a business where I had just taken too many risks with my money which meant when the (I know now) inevitable came, I wound up with a huge pile of debt that I had to find a way to deal with – and without a job to provide any hope to anyone. The worst thing about this is of course is that while other people are in debt because they have bought too many clothes, gone on too many holidays and had a high old time of things – I worked jolly hard to get this broke, with not much fun at all.
Bankruptcy loomed large and was discussed as a realistic alternative, but we escaped that peril (for now at least) and have re-organised our lives around the new situation and found that there are a vast array of ways to reduce expenditure and manage a situation which (certainly at the outset) looked insurmountable.

This blog is intended to share some experiences, but more particularly some knowledge. The intention is to help others in a similar situation find a way out of the hole and, by the way, develop perhaps a new philosophy on life that is at once both a better approach to living and less wasteful overall.

This all sounds a bit worrying, so let me say this: before we get started here, treat this as a fun challenge one that is both physically and intellectually demanding. Managing large amounts of debt will take you to places you have never been before: some dark, some so full of light they will bring a tear to your eye. It is a journey with a beginning a long middle bit and eventually (we hope) a safely arrived at ending.

More Reading: http://www.cash-drive.co.uk/