How can I manage my unsustainable debt?
Q: I have £15,000 in debt due on credit cards, overdrafts and personal loans from relatives. My take-home pay is £1,048 a month, from which I pay rent, childcare, child allowance, and generally try and survive. I am left with about £50 at the end of the month. How can I make my situation better?
Frances Walker, spokesperson for charity the Consumer Credit Counselling Service, replies:
In a nutshell, to improve your situation you need to tackle your debts, reduce outgoings and increase your income, which are all easier said than done.
As a general rule of thumb, if your repayments on unsecured debts total more than 20% of your monthly take-home pay, then you are likely to have a debt problem.
As you appear to only just be able to cover your debts, you are vulnerable to negative changes in circumstance.
Debt counselling charities can analyse your situation thoroughly, help you draw up a budget that you can live on, and advise you on where you may be over-spending.
You can seek free and independent advice from charitable organisations such as the Consumer Credit Counselling Service (CCCS).
If your debts are becoming unmanageable, you need to ask for help as soon as possible. Tell your creditors that you have done this. They will allow non-fee charging services time to work on your behalf.
Debt counsellors can also advise on ways to increase your income. You should check all the benefits you may be entitled to – the CCCS specialist welfare benefits centre will do this for you.
Always pay priority expenses before considering payments to your credit cards and loans. Non-payment of outgoings such as your mortgage, rent, council tax or utility bills can lead to more serious consequences.
CCCS can negotiate with your creditors to set up affordable re-payment plans, and also offer a full range of other solutions where appropriate, all completely free of charge.
You may be eligible for a debt relief order, a low-cost form of insolvency for people with low incomes and few or no assets, but this can only be determined by undergoing a counselling session to fully analyse your situation.
Generally speaking, insolvency is to businesses what bankruptcy is to individuals. A company is insolvent if the value of its assets is less than the amount of its liabilities, or it is unable to pay its liabilities (loan payments) as they fall due. It’s an offence for an insolvent company to keep trading, so the main options available to an insolvent company are: voluntary liquidation, compulsory liquidation, administration or a company voluntary arrangement.