Debt Management: Solving Debt Problems

If you get in to trouble with your debt, and it is all to easy for this to happen, then you\’re going to have to employ some debt management. There are a number of ways in which this can be done, and we\’ll be briefly going through a few of them here. The best thing to do though is to get some debt advice from a professional.

Make a Budget

Making a budget is an essential part of dealing with debt. Ideally you will have one before you get in to trouble, but whether you do or not it\’s important to make a new one as soon as your situation changes meaning that paying for debt is becoming difficult.

When you begin to make a budget, you shouldn\’t start off by trying to make cuts. Just set down what it is that you are spending money on at the moment, as well as all of your sources of income. You can start thinking about changes that can be made once you know the situation that you are presently in.

It\’s likely that you are going to find that you are spending more money than you are getting in. This may have resulted in your missing payments on debt already, or maybe not having enough for groceries one week. This is something you have to sort our right away, which can be done initially by prioritising what payments you are going to make to who.

Of course the things that should take priority are the essential living costs that you have. This will include everything from food to rent to utility bills. Something else it\’s important to keep up with the payments on is secured debt as you may lose your home if you don\’t.

Once the essential living costs and secured debt has been dealt with, hopefully you will have some left over to deal with luxuries as well as unsecured debt payments. Here you are probably going to have to make some sacrifices and cut down on the luxuries like going out in the evenings and weekends. You won\’t necessarily have to stop getting any luxury items though, just try to reduce them as much as possible.

At this point the only expenses left are going to be the payments on your unsecured debt. You should take a little bit more out of that so that you have something left over to deal with emergencies (or to save if there are no unexpected expenses) and then you will know how much you can afford to pay on your debt. This is going to be very important when it comes to finding solutions to your debt problems.

Debt Plans

Hopefully you will have realised your problem and made a budget before you have missed any payments on your debt, as this will mean that your credit rating will not yet have been affected. It also means that your creditors are more likely to agree to a debt management plan in which you make reduced payments for a period of time. This can be negotiated on your behalf by a third party.

This is where knowing exactly how much you can afford to pay towards your debt is so important. The debt advisers who will be negotiating for you will be able to tell your creditors the situation you are in and how much you can afford to pay, meaning that they may well agree to a debt management plan.

There is a potential problem with this debt solution though, which is that it is entirely voluntary on the part of the creditors. They are free to accept a reduced amount or not. So you may need to get an IVA instead, which will be available if you owe no less than 15,000 and your disposable income each months amounts to at least 200.

If you do qualify, and 75% of your creditors agree to receiving a reduced payment, then this will be a legally binding arrangement to all of them. And after 5 years, what you have not paid off will be written off.

When it comes to ways of dealing with debt problems, there are many more options available. Which will be most appropriate is going to depend on your circumstances, so contacting an expert to get debt advice is always a good idea.

George Allen is an expert in wide ranging financial matters. He can be found writing frequently at http://www.debtadvice.net which is where you can discover much more regarding debt management.