Tips For Managing Debt

When I first met my partner he'd recently given up his well paid sales job to become self employed. I'd also just become self employed — full of hope and expectations, with little in the way of savings to get me through the early months.

It took longer than expected to start earning any money — but the bills kept coming each month: mortgage, fuel, insurance, food; just the usual essentials of life were starting to amount to more than we were bringing in each month, and debts soon started to build up. I spent several months wondering if we were going to lose our home as our mortgage debt rose.

In the end I decided I didn't want to carry all that worry around every day, and went back into paid employment so we had one predictable income source.

You can get into debt for lots of other reasons than losing your job; these skills are relevant whatever the reason you find yourself managing debt.

Don't Try to Manage Your Debt Alone

Speak to your creditors as soon as you can. Many people put this off, thinking that things will be okay, something will come up, they'll just cut back for a while and see how it goes. It's important to stay positive about your future, but this shouldn't stop you talking to your creditors. And the longer you put it off, the worse it will be.

Remember — your creditors are experienced at managing debt — you're not the first customer who's struggled to make payments. They're not going to assume you're a bad person. Most banks, mortgage lenders and credit companies have specially trained staff who will help you through the situation. At the end of the day your creditors do want their money back, but they know their best  option is to work with you.

Make sure you have any relevant correspondence available, especially letters about arrears. Phoning or a face to face meeting is better than writing, but you may want to confirm or clarify things in writing so that you have a record of what you discussed and agreed.

It's easier to discuss the situation with your creditors once you know what your income and outgoings are, so once you've made the initial contact there are some things to do to demonstrate that you are taking the responsibility for managing your debt.

Know Your Income and Expenses

It may seem obvious, but the majority of people, if they're honest, don't really know what they're spending, even if they do know what they're earning. And both sides of the equation are important.

When I was made redundant there was no longer a monthly salary but there was unemployment benefit, plus a final untaxed salary payment, so some money in the bank.

Expenses included mortgage, other insurances, credit card and loan payments, plus necessities like food and transport. This included the costs of running a car, dividing insurance, tax and maintenance costs on a monthly basis.

My partner's earnings and expenses were also included as well to give the full picture.

I knew all my commitments and income sources. This showed my creditors I was actively managing my debts.

Find Out What You Might Be Entitled To

Many people still feel there is a stigma about applying for benefits, but that's not an attitude you can afford to take when you're in debt. Nor is it an attitude you should ever take. You've most likely paid into various funds, and you're entitled to call on them when you need to.

Many famous actors and actresses have 'resting' periods when they might need financial support to help them through, especially when they're starting out. If they hadn't been willing to claim this maybe they would have given up and we would have been denied the enjoyment of their talents.

So stop procrastinating and get the forms filled in!

Many store and credit cards offer unemployment and sickness protection insurance, as do many mortgage lenders. If you've been paying for this each month then now is the time to get all that money back. If you do have this insurance against any debt it will take some worry away.

Depending on your full circumstances, and where you live, you may qualify for reductions in local taxes, help for school meals, medicines and other payments. Remember you've probably built up these credits and contributions while you were in work, so use them now. You didn't begrudge your contributions helping other people managing debt in the past and now it's your turn.

Identify Your Priority Expenses

There's no point in making credit and store card payments to find you've no longer got a secure roof over your head. All your debts are important but some are more important than others and you need to identify these.

There are also differences in what action different creditors can take if you stop paying them, which can help you in managing your debt. For example you could be evicted for non-payment of rent or a mortgage, but credit card and loan companies can't resort to such extremes, although they may be able to seize your possessions against the debt, after going to court.

So mortgage or rent, utility payments, necessary living expenses are all high priorities.

Tell Your Creditors How You Plan To Manage Your Debt to Them and Get Their Agreement

Try to make a payment, however small, to each creditor regularly. This is better than paying some and ignoring others, unless you can justify this. If your creditors think you're not dealing equally with each of your debts they may be less willing to accept your debt management plans.

Stick to what you agree — so don't offer to pay more than you can afford.

Find Out How Your Creditors Can Help You

People don't realize that it's possible to negotiate with creditors. For example, if you make a late payment on a credit card and it's completely out of character, a genuine oversight, you can ask if they will refund any late payment fee charged. Often they will do this, especially where you have a good payment record.

Don't ever assume you are powerless. Effectively managing debt includes finding out what scope there is for negotiation.

Credit and store card companies may freeze your interest so your debt doesn't keep increasing each month. You might also be able to convert to a fixed payment loan at a lower interest rate.

Keep People Informed

If your circumstances change and affect what you've agreed, you must tell your creditors promptly. This applies whether it's a negative or positive change. If you find a new job ... become ill and have new expenses ... get a debt reduced or cleared and free up money that can be used to pay other debts ... family circumstances change leaving you with less income ... whatever happens you must tell people.

Your creditors are only interested in your ability to keep paying them.

If you do find you have more money it's wise to remain cautious and fair. Try to clear debts where there are high interest penalties, but otherwise, increasing your payments to all your creditors means you are still keeping a level playing field between them. Again you're showing a mature approach to managing your debt.

Once things get easier consider overpaying on your mortgage, as this can give you a reduced balance and also a 'buffer' in case of future difficulties. Check your mortgage provider's rules first, as some have limits for over payments or don't apply these straight to your account, in which case you may be better saving up then making a single extra payment.

Organizations Who Can Help You Manage Debt

Some of these suggestions can seem daunting, especially dealing with banks and other financial companies if you're not used to this. There are lots of organizations that can help you in managing debt; many are funded by local or central government and offer advice free. They may also offer free practical help, like writing letters, making phone calls and negotiating with your creditors. Their details can be found in local directories or through government offices.

Other companies will charge you for their help. If you decide to use one of these it's important to find out exactly what they can do, and how much it will cost. Sometimes they claim they can do things that just aren't possible: a quick call to your local free advice center could save you making a costly mistake.

Avoid any company that charges introductory and monthly fees. After all, your goal in managing debt is to reduce — and eventually — remove it, not put yourself in hock to a company who claimed they would help you solve your difficulties.