How yo avoid debt management issues

When trying to get out of debt, one of the best skills to develop is improving your debt management. Here we outline some useful debt help options, and show ways to combat credit card debts problems with some simple debt advice.

The basics of debt management

If you're already struggling to maintain your commitments, or you're going further in debt each month, then the first thing you need to know is your financial situation.

The first step is understanding exactly how much you receive each month, and how much is already tied-up with essential items such as rent/mortgage, food, travel, utility bills and council tax. If you take away all of your essential outgoings (not including payments towards your unsecured balances) from your total income (wages, tax credits, benefits, pension etc), you are left with an amount called your "disposable income". This is a realistic amount you have available to repay towards your unsecured creditors. If this is a sufficient amount to cover all of your current credit commitments, then you may need to review your spending on non-essential items. This means cutting back on things like magazines, clothes and social activities. You could try to maximise your income by taking on a second job in your part-time, or you may need to see where you can lower how much you spend on essential items too, by switching gas or electricity providers to get a cheaper rate.

It may be worth trying to get a loan, but as the availability of debt consolidation loans is scarce, you will probably be refused - which will harm your credit rating further.

If your "disposable income" amount is not enough to cover all of your unsecured payments, then you should seek some impartial debt help, as you could be developing some serious debt problems for the future.

Professional debt help solutions

Reputable debt help organisations can offer simple budgeting and debt advice, that can help to reduce your debts. In some instances they may need to recommend one of a range of professional debt solutions - like Individual Voluntary Arrangements (IVAs), Debt Management Plans (DMPs) or Trust Deeds - to help you get out of debt.

Individual Voluntary Arrangements (IVAs) - these are a popular solution for people struggling with unsecured debts over £13,000, that allow all unsecured balances to be repaid with a single monthly payment. They involve a legal contract between you and your creditors, which protects you from any further legal action being sought against you - providing your payments towards the IVA are maintained. This agreement is drafted and proposed by a qualified insolvency practitioner, who will also provide ongoing IVA advice and support. At the end of the term - usually within five years - all remaining unsecured debts are written off. Once the IVA has been agreed, all additional interest and charges will stop being added to your accounts, reducing the total amount you have to repay.

Debt Management Plans (DMPs) - these provide a flexible way for people struggling with their unsecured credit commitments, to simplify their finances and repay debts at a more affordable level. You make one monthly payment (based on how much you can afford after living costs), which is distributed to your creditors on a pro-rata basis. Your debt help provider will also negotiate with creditors to reduce or freeze interest and charges on all accounts, plus they will handle all correspondence on your behalf. This means that you won't need to worry about phone calls and letters from creditors.

Trust Deeds - these work in much the same way as an IVA, but are only for people living in Scotland. Like an IVA they are repaid over a fixed period of time, however this is usually within three years.

For immediate debt help, or for more information regarding debt solutions, just click on this debt advice link.