The way is which debts can be managed

Consumer debt in the UK continues to increase yearly with the latest figures suggesting the average UK household is managing debts of £54,000.00. This figure is in stark contrast to a decades past but nevertheless debt has always been a prominent feature of many consumers’ everyday lives. Many consumers have little option when it comes to credit, in a more generalised sense, given it is the only possible route to manage elements of consumer spending and that of the larger living expenses. Take for example the cost of purchasing a house, many consumers do so via the means of a mainstream loan, usually via a mortgage provider. Outside of this is long used form of credit there are also a vast selection of other credit resources which over time have been well established as means to support consumer live styles in a variety of ways. Of course with any form of borrowing there is then a financial commitment which will follow and when multiple credit resources are continually used over an increasing period of time, this is when debt can arise. Consumer debt can be extremely distressing and if it is not managed effectively, can cause a snowball effect for those concerned.  In order to avoid this situation or certainly learn to manage existing debts more effectively, there are a number of key steps which can be taken which will be looking at in a little more detail today.

The first and most important step when you find yourself in a financially challenging situation is to avoid the temptation to keep borrowing. A research survey concluded that many consumers continued to borrow or even accelerated their borrowing when it became obvious that their existing finances were not truly manageable. This kind of behaviour is often the result of panic based motives coupled with the belief that a new resource could buy more time with existing creditors. The reality is if your existing financial commitments are unaffordable, further borrowing will only serve to exacerbate the situation. Stopping borrowing of any kind will only help to start reducing the existing amount owed, even if the time scale for repayment is longer than originally planned.

The second step is to communicate in an honest and open manner with your existing creditors concerning the repayments due and the difficulties you are facing. Through the various different official governing bodies of financial product providers there is a good level of protection in place for consumers. This means where consumers demonstrate and can honour alternative repayment proposals there is protection put in place to suspend creditors from taking further and often more extreme methods of recovering money owed. The message here is that although the contractually agreed amount may later become impossible, expressing and honouring an ability to work with creditors to reach alternative arrangements will not only help to reduce the amount owed at an affordable rate but also prevent the account from falling into more serious levels of debt in the future.

Currently there are a host of different companies who offer varying levels of support and guidance to consumers who are facing debts which they are unable to maintain. Some of these resources are based on legal steps being taken to resolve the issue, as well as paid debt management services and free charity based companies. Taking the extreme routes available for managing spiralling debt issues; Bankruptcy, IVA’s and Debt Relief Orders. These three options have specific debt based requirements in order for the resource to be used and therefore are not available to each and every consumer facing a level of debt. Rather in fact these options are ‘last resource’ options when an individual’s debt levels have reached a point where it is unlikely a positive result can be gained without a ‘line in the sand’ effectively being drawn. In order to hopefully avoid these extreme steps there are numerous companies who exist with the intention of offering guidance and support in better managing existing creditors and the monetary debts owed to them. These companies are commonly known as Debt Management Companies and there are several different types which are available to consumers. The first of which are the providers who charge a monthly fee for the service provided. Typically these companies will offer the service to deal with creditors on the customers behalf and in turn a fee will be payable each and every month. Whilst some consumers lean towards such companies as they provide the ability to ‘step back’ from creditors, paying a fee is of course reducing the funds you ultimately have available to pay to existing debts. Thankfully there in addition fee free alternatives, such as the service offered by Step Change. Step Change is a charity based organisation who offer the same service but where they differ is in the fact that they do not charge a fee for the overall service provided. This means there is a debt management resource available which can offer impartial debt advice without reducing the amount available to distribute to creditors. Considering all options in a sensible and informed manner will help to ensure the correct and most suitable resource is selected to assist with the financial management of existing debt. 

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

Warning: Late repayment can cause you serious money problems - For help, go to moneyadviceservice.org.uk

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Author: Internal Marketing Department