Bank balance as empty as a pulled cracker on January 1.

While your belly may be bloated with the excesses of the festive season, you may have found your bank balance was as empty as a pulled cracker on January 1. The financial hangover from Christmas lasts last longer these than the physical hangover on New Year’s Day.

Even if we didn’t overspend at Christmas, it somehow feels as if we did. Spending just seems to expand so as to consume all available cash and then some. It doesn’t seem to matter if we are paid weekly or monthly, Christmas just seems to be like a good vacuum cleaner, sucking up every spare penny.

If we are living on a pension or are unemployed and living on benefits, January can be a painful month financially speaking. January is the month of reckoning and the bills are beginning to arrive. Now is the time to be creative and to consider how to deal with payments. What are the options? Here are a few ideas.

Seven steps to get out of debt
While debt may be the cause of much stress and worry, there are many ways to get out of debt. Taking control of your debt problems will give you peace of mind. As soon as you begin to tackle your debt you’ll sleep better, breathe easier and feel more relaxed.

Step 1: Acknowledge your debts

Even something as simple looking for a solution is a positive start to dealing with your debt. You have the right attitude, and by taking further steps you can climb out of debt.

Step 2: List your income and expenses

It’s time to take a realistic look at your debt situation. Writing down your incoming money and outgoing expenses is a great way to organise your finances and will help you see exactly where your money is going. When you start looking at your spending habits, you might be surprised by how much money you spend on small items that you could easily live without. Write down your income and all your expenses. Make sure you include all expenses, from rent or mortgage payments to phone bills, groceries and little treats (like your morning cappuccino). Doing this will show you how much money you have left over to tackle your debt after you’ve paid all your living expenses, and will highlight areas where you might be able to cut your spending. Your written account is called a financial statement, and can be used to show your creditors how you’re managing your debt.

Step 3: Maximise your income

Are you getting all the income you can? You may be eligible for government entitlements, such as: Job Seekers Allowance if you are unemployed or have been made redundant. Child Tax Credit and Working Tax Credit if you have children or are working on a low income. Income Support if you are on a low income and meet other criteria. Incapacity or disablement benefits, including mobility or attendance allowance. Maintenance – contact the Child Support Agency if you think you may be eligible. Income tax – make sure you are paying the correct tax. Check with Inland Revenue to see if you are on the right tax code.
Housing benefit and council tax relief – check with your local council. Check with the Department of Work and Pensions if you’re not sure what you’re entitled to.

Think about other ways you can increase your income.

Here are a few ideas:

  • Consider taking in a lodger if you have a spare room.
  • Ask working-age children to contribute to the bills or pay board.
  • Get a second job, working part-time. It may be a good temporary way to increase your income while you are trying to sort out your debts. Make sure you check out the tax situation first.
  • Increase your salary by working overtime if you can, getting a promotion or going for a new job.
  • If you claim a new benefit or find another way to boost your income, it might take several weeks before you start to get the money, so exclude it from your calculations for now and then review your situation once you start getting it.

Step 4: Make cutbacks to reduce your expenses

Now comes the hard part. It’s time to look at your spending and work out where you could make savings. You’ll probably find that reducing your expenses is not that hard. A few small changes can cut your expenses significantly. Here are some ideas:

Use a balance transfer card to cut out interest
If your credit score is not too unhealthy, you could consider putting your existing credit card debts onto a 0% interest balance transfer card. This will stop your debts growing as you can avoid being charged interest for a few months, or even a few years. But be careful to check that you will be better off as you may be charged a fee to transfer your debts.

Save on your transport
A train or public transport season ticket may be cheaper than driving. Even better, can you walk, ride a bike or car share?

Cut back on ‘luxuries’
Take your lunch to work instead of buying food from a nearby cafe or sandwich shop. If you’re a coffee addict, cutting down out a daily coffee could save you around £600 a year. Eating lots of fruit and vegetables, and making things from scratch is usually much cheaper than prepared food, and better for you too! Switch your household utility suppliers
Many people don’t realise they can save money on the essentials, but you can save money on expenses like gas and electricity and your home phone by switching to a cheaper supplier.

Step 5: Prioritise your debts

Your financial statement will tell you how much money you have left over to pay your debts after you’ve paid for your essential expenses. You now need to work out what to pay to whom. The organisations or people you owe money to are known as creditors.

Start making regular payments to your creditors, even if you can only pay them a small amount. If your creditors see that you are committed to sorting out your debt, they will give you some leeway while you figure out your long term repayment strategy. Some debts are more important than others. Your priority debts are the ones that will have the most severe penalties if you can’t pay them, for example:

  • Rent or mortgage payments
  • Electricity, water and gas bills
  • Council tax
  • Magistrates fines
  • Inland Revenue / VAT payments

Step 6: Contact your creditors

By this stage you should have your financial statement and your list of priority and non-priority debts with the amounts you intend to pay. It’s time to start negotiating with your creditors. Start by writing a letter to each creditor that says you’re having financial difficulties. Briefly explain the reasons you got into debt and your intentions for getting out of debt. Include your financial statement and your list of debts. Your creditors will normally respond empathetically and discuss your payments with you.

Tips for negotiating with your creditors:

  • Don’t offer all your income to one creditor.
  • Start your negotiations by dealing with the most urgent debt.
  • Don’t feel pressurised to make payments you can’t afford.
  • Even if creditors don’t agree to your reduced payment offer, pay it anyway. It will reduce your debt and may persuade them to change their mind.
  • Get receipts for your payments and confirm any agreements in writing.

Step 7: Work out your long term debt strategy

You need to decide how you are going to get out of debt in the long term. You may benefit from taking out a debt consolidation loan to clear your debts, and then just make one payment towards the loan. The advantages of this are:

  • Creditors will stop chasing you for payments
  • You will only have one payment to make each month
  • The interest rate may be lower than what you are currently paying
  • There are other steps you can take to reduce the pressure you are feeling:

Talk to the StepChange Debt Charity – formerly the Consumer Credit Counselling Service or any other debt charity for free advice about your options.
Make reduced payments with an Individual Voluntary Arrangement, a formal agreement to pay a reduced amount.
Go to court. If a creditor takes action against you with a County Court Judgment (CCJ), you can resolve the issue in court.
Get a Debt Management Plan. A debt management company can arrange this, usually for a fee, and they will consolidate your debts, negotiate with your creditors and distribute your payments for you.
Declare bankruptcy.
Get an Administration Order. You can apply for a court order that covers your debts. You pay the court and they distribute your money.



source: Disclaimer- The information in this website is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact an adviser or solicitor. 26/12/16

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