The high level of bills and prices are leading some people to borrow more or leaving them struggling to make debt repayments.
The Financial Conduct Authority, which regulates financial services, says that 11 million adults in the UK struggle to pay their bills – a rise of 3.1 million compared with last year.
So, what can you do if you find yourself in difficulty?
Who can you talk to?
It is important that you do talk about financial difficulties before finding yourself in a spiral of debt. The earlier, the better.
If you think you cannot pay your debts or are finding dealing with them overwhelming, seek support straight away. You are not alone and there is help available. A trained debt adviser can talk you through the options available.
What practical steps should I take?
Our experts say that you should work out how much you owe, who to, and how much you need to pay each month.
Identify your most urgent debts. Rent or mortgage, energy and council tax are called priority debts as there can be serious consequences if you do not pay them, and so they should be paid first.
Calculate how much you can cover in debt repayments. Create a budget by adding up your essential living costs like food and housing and take these away from any income such as your wage or benefits.
Always see how you could boost your income, primarily by checking what benefits you are entitled to, and whether you are eligible for a council tax reduction or a lower tariff on your broadband or TV package.
What happens if there is no prospect of paying off debts?
For some people, there is little or no chance of paying off debts, and so they may have to consider some form of personal insolvency.
This should only be done after seeking advice. There are different forms of insolvency which may be considered depending on your circumstances and where you live.
Bankruptcy: This is a legal procedure which involves an official receiver being appointed, they may investigate your finances and could freeze your bank account, usually for a few days to do this. They will also deal with any assets you own such as a property and this may be sold to repay your debts. The procedure currently costs £680, but you can pay in instalments, you can apply online but cannot submit the application until the fee is paid in full.
Individual Voluntary Arrangement: Under an IVA, an insolvency practitioner will help you enter a legally binding agreement with your creditors, which allows you to pay off your debts over a fixed period – usually 5 or 6 years at an affordable amount (known as your contribution). Once approved, all interest on unsecured debt is frozen and your assets are usually protected. There are fees for setting up and managing your IVA which are paid to the insolvency practitioner, however, these come out of the contributions you make and are not on top of this or paid upfront.
Debt Relief Order: This form of insolvency was introduced in 2009 and is commonly known as a DRO. Your debts must not exceed £30,000 (£20K in NI). You cannot be a homeowner or have assets of £2,000 (£1K in NI) or more and must not have a disposable income of more than £75 (£50K in NI) each month. If your application is accepted, your unsecured debts will be frozen for one year, then written off. A DRO costs £90.
Insolvency in Scotland: If you live in Scotland, bankruptcy is known legally as sequestration. However, there are three alternatives: A Debt Arrangement Scheme, A Debt Management Plan, or a Trust Deed.
It’s important to remember that any debt solution will affect your credit rating for at least 6 years and your details published on the insolvency register if you become insolvent.
Our team is trained on all debt solutions and will always look at individual situations. There is no one size fits all solution and the above is just a brief outline of the options available.
If it’s time to consider options, feel free to make an appointment with one of our team here to discuss your situation and your options in more detail.