Budgeting |
|
Your Money > Budgeting Articles > Now are you...
|
|
By Sarah Modlock
If you're feeling concerned - and even if you're not - here are five steps to help you shake off debt and refresh your approach to money for 2008... Step 1: Put together a budget Firstly, don't panic. It's easy to feel overwhelmed by debt and put off dealing with it. Working out your budget is not hard and will not take long but it holds the key to managing your finances effectively and avoiding debt in future. You need to know how much money is coming in and going out. Start with a blank sheet of paper divided into two columns. On one side, list details of your monthly income. If you have joint finances, include your partner's salary but then don't forget to include joint costs and debts as you complete the next steps. In the second column write down all your monthly spending. This list will be longer than the other one but don't panic. List essential spending such as your mortgage or rent, council tax and fuel and phone bills and then make a total of how much those cost each month. List the monthly costs of everyday spending such as food, clothes, travel costs, toiletries, prescriptions and child care costs. Don't forget the cost of running a car (divide annual costs such as tax and insurance by 12). If you smoke or drink, include an honest guess of how much you spend each month. Then make a total of your monthly everyday spending. Add the amount you wrote down for essential costs to the amount for everyday spending to give you a total monthly spending amount. Take the monthly spending amount away from the monthly income amount. The amount you're left with is the money you have which could be used to start repaying your debts. No one will expect every last penny you have and repayments will always be affordable. If you have no money left and are spending all your income every month then don't panic. You can still clear your debts. But start looking at areas where you may be overspending. Step 2: Prioritise your bills and debts Gather together every letter and bill and any other money related paperwork, then open all envelopes, however scary it may be. Include all credit card and loan statements, catalogue and store card bills, hire purchase agreements, bank statements and letters about your debts. Put each pile into date order with the most recent on top. Then on a clean sheet of paper, write how much you owe on each debt and next to each amount, write down the amount of interest you are paying on the debt (this should be on your statement). Priority debts are debts owed to creditors who can take the strongest legal actions against you if you do not pay. It is not the size of the debt that makes it a priority, but what the creditors can do to recover their money. If you have mortgage or rent arrears where the lender or landlord can repossess your home or evict you. Unpaid utilities debts mean your electricity, gas or telephone can be disconnected. With unpaid maintenance, child support, council tax or fines a court can use bailiffs to repossess your goods. If you owe income tax or VAT you can be made bankrupt or imprisoned for non-payment. If you have any of these debts, you must deal with them before you offer to repay any of your non-priority debts. Examples of non-priority debts are credit card and store card arrears, catalogue arrears, bank overdrafts and loans, benefits overpayments, hire purchase agreements for non-essential items such as a television and money borrowed from family or friends. You cannot be imprisoned for not paying non-priority debts. You are unlikely to lose your home or your essential goods. However, if you make no offers to pay, without explaining why, the creditors will take you to court. If you still fail to pay when the court has ordered it, the creditors can take further action - for example, they can get another court order allowing them to send bailiffs in. Step 3: Work out how much you can repay Whether you have one company chasing you for a debt or several, it can be confusing when it comes to working out how much you can afford to repay. If money is tight then National Debtline has a simple solution. Use your budget to work out how much money you have left each month once your essential bills and priority debts have been paid. Now add your remaining, non-priority debts together. Multiply the monthly amount you can afford to pay by the individual debt. Then divide this amount by the total debt to get a monthly payment amount for that particular debt. It sounds complicated but don't be put off. This example should make it clearer: £50 a month (what you can afford for all non-priority repayments) x £2500 Blogs Bank credit card divided by £4800 total non-priority debt = £26 a month repayment for Blogs Bank credit card. Do this for each of your debts and you will have a realistic and affordable set of repayment figures. Contact the creditors in writing or by telephone, explain the situation and let them know what you can pay - even the smallest payment will show that you are making an effort.Remember that your debt will continue to grow if your new monthly offer of payment to the creditor is less than the interest being added. Ask the creditor to stop charging you any more interest. They may agree to this for a limited period then start charging interest again. Ask them to waive any late payment charges, too. Step 4: Think before you sign up to more debt When you are in debt, it is easy to feel trapped and look for solutions that will ease your mind and get creditors off your back, if only to give you a breathing space. One big temptation is to sign up for a new loan or overdraft to pay off one you already have. A new industry has grown up over the last three years offering debt management in return for a fee. Don't rush to take up their offers as an easy way out. They represent an expensive way of resolving your debt problem and do not provide any services which you cannot secure on your own, free of charge. If you jump into a debt management or consolidation plan it may bring a sigh of relief to see that your debt can now be repaid over 10 years instead of two but this a way of making more money out of you. If you think debt consolidation and management is the way forward, you can get a free service from Payplan, an independent company which is funded by the credit industry. It can help you to set up and keep to a manageable repayment plan for your debts and undertake regular reviews of your circumstances to ensure that your Payplan arrangement is still working until all of your debts are cleared. Call 0800 085 4298 or www.payplan.com. Open 8am to 8pm, Monday to Friday. Step 5: Ask for help There is no shame in asking for help to sort out your debts. It could kickstart some positive action, particularly if you are in a vicious circle with your overdraft is increasing every month and if you are using credit cards to buy essential food or withdraw cash on a regular basis. Get in touch with a national organisation such as the Consumer Credit Counselling Service (Call 0800 138 1111 or www.cccs.co.uk. Open 8am to 8pm Monday to Friday) or National Debtline (Call 0808 808 4000 or www.nationaldebtline.co.uk. Open 9am to 9pm Monday to Friday and 9.30am to 1pm Saturday) for free information and advice. Useful links: |
| ||||||||||||||||||||||||