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Solving your debt crisis, Five Debt Destroying Actions to Take Prior to Choosing your Debt Solution

Solving your debt crisis, Five Debt Destroying Actions to Take Prior to Choosing your Debt Solution

by admin on 5 September 2007

So you have finally admitted to your debt problem and have informed yourself of the potential solutions available. After receiving professional debt advice, you are now determined to proceed with a debt solution to destroy your debt problem once and for all. Is there anything else left to do?

Well actually, yes. In the period before you actually go ahead with your chosen debt solution there are a few actions that are worth taking such as reclaiming your bank charges, for example. Also you’ll need to seriously investigate ways to cut your expenditure as most of the debt solutions will require some belt tightening. So here are the top five debt destroying actions:

1. Stop Increasing Debt and Cut Debt Service costs
Whichever solution you choose your addiction to debt must end. So the first step is to stop increasing your debt and especially spending on anything that is high interest such as credit cards. That way you will be, at the least, looking at making reduced payments on a debt management plan (DMP) (if you choose that solution).

Again if you are considering the DMP route or debt consolidation, try if possible, to cut any costs associated with servicing your debt by either petitioning the creditors asking them to reduce interest and stop charges (see the link to template letters in the resources section) or by transferring the credit card debts to a “zero percentage” credit card. (Actually “zero percentage” is a bit of a misnomer because most credit card companies have a standing charge of approx. 2.5% of the balance to switch debt to a new card. However this strategy is worth pursuing if you are not blacklisted and the rate you’re currently paying is very high.) Information about this strategy is available online. Links will be posted on the resources section of this website.

2. Budgeting
No matter what solution you choose to your debt crisis, you will probably have to live on less. That means you’ll need to start improving your budgeting skills right away. Based on your Statement of Affairs, you already have a breakdown of your expenses. Well, you’ll need to identify and start eliminating “luxuries” right away. Unfortunately the term “luxuries” is a pretty broad term to the debt management professionals who consider most non-essentials as “luxuries”. The budget expenses permitted in an IVA proposal, for example, are trimmed down to the bare necessities. Even smoking expenses, for example, are considered a non-essential and would therefore not be permitted by your creditors. The expenses for bankruptcy are a little more generous but you still have to agree a budget with the Official Receiver. In any case, for all debt solutions and for securing your long term future, budgeting is vital.

As well as cutting out the luxuries you can cut some basic expenses as well. If you are really thrifty, for example, you can usually obtain good quality food at knock-down prices if you visit the supermarket shortly before closing time. Clothing should be handed down among siblings and it is possible to get high quality goods at basement prices in the charity/discount stores. And of course there is always ebay! There are tons of financing and budgeting websites and blogs that have literally hundreds of ideas/tips and ways to cut expenses, manage your finances and save money. Some are obvious, some are not but I would strongly suggest that you check them out. Again some links are supplied in the resources section of the debt-secrets website.

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If you hate this penny pinching – and who doesn’t? – do be aware that this may be what your life will be like if you choose the IVA solution. IVA budgets have notoriously tight living allowances so if you are thinking of going in that direction you will need to start budgeting right away!

3. Increase Income
In the Debt Self help pack from the National Debt Line (see the resources section) you will get tips on increasing your income and information on various benefit entitlements that you may not know about or are missing out on, such as, for example, tax credits, education maintenance allowance, council tax benefit etc.

If you are working, there is also the possibility of overtime or a second/part time job to increase your income. This is fine if you are in a DMP or have chosen the debt consolidation solution. However, if you are desperate to go down the IVA route, exercise caution on how much of this overtime is included in your IVA proposal. An increased workload can be difficult to sustain for a whole 5 years not to mention that the income you make from this extra work is not guaranteed anyway. Therefore you could be exposing yourself to the danger of IVA failure. Also, with regard to bankruptcy and overtime, rather than increase the amount you earn through overtime you may actually prefer to cut any extra income (see the bankruptcy secrets section for the reasons).

In any case, when you are actually bankrupt or in an IVA, approx 50% of the income you make from the overtime that you declare will be taken from you.

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