How to deal with debts
How people get into debts in the first place.
I can tell from my personal experience that it is so easy to get into debt and so hard to get out of it. But don't lose hope it is possible to be debt free, but you need to be focused and determined to get out of debt. If you can't do it by yourself, ask for help from family members (even just for emotional support), trusted friends and trusted organizations like the CAB(Citizens Advise Bureau). But I find that it is really better doing it yourself by learning how to manage your own money.
The thing is with the introduction of credit cards and personal loans, it is so easy to borrow money. Good for the banks but not for us. I noticed that since those offers of credit cards and loans were introduced, many people got into debts because of it. Some people's houses or properties were repossessed to pay for debts. People went bankrupt.
I remember banks sending these offers thru the post and that is how I got hooked on credit cards. I should have binned them but I did not and I learnt my lessons the hard way.The bank won't even do a check on your credit file to see if you are capable of repaying the loan or not. On the other hand, it is up to us to take it or leave it but sometimes it is too hard to resist the temptations especially when they poke it to our letter boxes. I blame banks for not checking the credit files of people borrowing money me included. But I don't blame the bank entirely for my debts because I borrowed it and I spent it. Bad advice from bank staff also contribute to people taking the wrong kind of loan or credit.
It reminds me when banks were selling the endowment policies back in the 1990s, wherein they say that it will pay off our mortgage when we reach the term of our loan, but actually it is not true in some cases like ours. An endowment policy is an insurance that you take out with your mortgage and they promise to pay off your mortgage when it matures after 25 years or certain amount of time but more often not. It was very expensive insurance to pay but we took it thinking that it would help pay off our mortgage as they say but it is not true in our case. We have to cash in our endowment policy for our mortgage early, because we worked it out that we were just paying more money and we were losing out. Then the bank wrote to us to say that our endowment policy is not enough to pay for our mortgage when it matures but we already know this as we worked it out ourselves. We used our endowment money to pay off some of the capital of our mortgage and it helped us save some interest. It also helped us to pay off our mortgage 5 years early. In my opinion, it is better to save if you have spare money then use it to pay off the mortgage.
A lot of people got into trouble because of bad advice given to them about endowment policy. Even banks were penalised for giving the wrong advice and they had to give some back money to people, when people complained to the Ombudsman and Trading standards about miss-selling of endowment policies and giving the wrong advice to customers.
Reasons why people get into debts
1. Redundancy - is number one reason that some people get into debt in my opinion. It is unfortunate when it happens and you are already in debt and have no savings. Your repayments can't be met and your creditors start calling you. When this happens, get in touch with your bank or creditors immediately especially when it concerns your mortgage repayments. You don't want your house repossessed because you need a roof above your head. Redundancy can not be predicted when it happens.
2. Illness - is unpredictable when it happens like redundancy. My debts accumulated when I was ill. When you become ill for longer periods, your bills accumulate and you find yourself in debt or if you are in debt already, please get in touch straight away to your creditors to let them know. It is important, that you let them know immediately to prevent them from putting late payment charges and high interest on your account because this is what happened to me when I was ill.
3. Divorce - when people get divorced and find out that their partner, wife or husband has debts connected to their property they will be liable to pay as well especially if the husband and wife are joint owners of the house or flat.
4. Lack of knowledge about debt - like I did, but now I have learnt a lot about debt and is very useful to have a little knowledge for when you will be in a situation like I have been. I am wiser now than before about debts and borrowing money. I am more careful and sensible about borrowing now.
5. Spending instead of saving first - people tend to spend and pay later but can you blame them when some furniture shop says on their offer "Buy Now Pay Later". It is hard to resist the offer when people like me got no savings to buy this furniture. Sensible people will save and buy this furniture.
6. School Fees - students although they are given grant by the government, they will be in debt before they finish school and before they get a job to pay for their grants or fees.
7. Natural disasters - like floods, typhoons, snow, volcanoes erupting and tsunamis can be reasons for people to borrow money to keep them going while they sort themselves out.
8. Wrong Financial Advice - some financial institutions like banks, credit providers, and even independent Advisers give the wrong advice to people about financial products like mortgages, insurance policies, credit cards and loans.
How to handle your debts
Debts are good when you know how to handle them but it isn't good if you lost sight of how much you owe and don't know how much it is costing you each day in interest. Debt becomes bad when you don't even know or want to know how much you owe to repay and even worse when you ignore the letters, emails or phone calls that your creditors send you. Or not answering the phone when your creditor calls you. Sometimes, they will even call you at work which is very embarrassing when you are working.
The important thing to do is communicate with your creditors(people you owe money to) instead of avoiding them. I can tell from my experience that some of them are quite sympathetic and if they know you are really struggling they might even reduce the amount you owe them and not charge interest as well. But you have to inform them of your situation and let them know. Communication is really important when you are in debt. When you receive letters from your creditors, read them and action them then file them. Do not squirrel them away because they won't go away, do something now instead of later or tomorrow. Because it gets worse I tell you, if you don't do anything now. Sometimes, we say to ourselves, oh it is only a small amount but that small amount will become big amount if they add some interest and charges on top of it. If you have property - a car, motorbike, boat or a house or flat they will put a charging order on them, so that if you can't repay your debt, they will sell your property to pay for your debt. They have a right to do this. Obviously, they want to recover their money. But they can't just take away your property or cars without going thru the legal procedures.
Another thing that you have to do when borrowing money whether it is credit cards or bank loans is to read the agreement especially the small print carefully before signing it. Because you want to know what happens if you defaulted or forgot to pay your credit card or loan at an agreed date and time. I did not read the small print in one of my unsecured personal loans because I believed that it won't affect my home but it did. Because according to the staff who offered me the loan it is unsecured personal loans but they have a way of attaching a charging order to your property if you default on your payments. I learnt it after being given a Court Judgement against our home. I had to go to our local County Court only for them to attach my debt on our home. I was not even given a chance to explain myself to the Judge. I just sat there, the Judge did not do anything or say something to me. The next thing I know I got a charging order to my half of the property. It is all been paid and settled now.
Another important thing to do is to draw up a budget so that you know exactly what is coming in and what is going out. Budget plays an important role in paying debts. The creditors will ask you to send them a budget plan. They want to know what you can afford to pay them. Also for your own benefit, because you can't send them what you haven't got. With a budget, you can see how much money is left to offer your creditor or creditors. I find this helped me a lot then and even now.
Paying off your debts
Sometimes when your creditor knows that you are in trouble they will sell your debt to a third person or they will pass your debt to a debt collection company who recovers debts. When they do this, they will write you a letter to say what had happened and they will tell you how much is left for you to pay. The creditor might even take pity on you and remove the interest and charges and only let you pay the capital amount. But for them to do this, you have to write, email them or talk to them on the phone. This is where communication is really important between creditor and debtor.
Try to pay as much as you can afford to repay rather than just paying the minimum amount. It will take you longer to repay your debt. And don't borrow more to consolidate your loan.
Ways of reducing or paying off your debts:
1. Gardening - growing your own vegetables, flowers and fruits helps. You don't have to buy them or you can do gardening for others and get paid for it. If you have spare vegetables from your garden, you can sell them in the market stalls.
2. Dog walking - if you like walking dogs, offer your services and get paid for it.
3. Selling Crafts and baking cakes - if you know how to knit, crochet, you can sell crafts on E-bay or Craig list. If you are good at baking cakes, you can sell them at work, or on your local town with market stalls on certain days.
4. Taking on extra work or doing overtime at work. Offer cleaning and care work services in the community. Advertise your talents on local shop windows. Do cleaning and shopping for elderly people who can't get their shopping by themselves if you got a car.
5. Writing articles or poems like here on Hubpages, asking and answering questions at WebAnswers and get paid and offer your talents like doing translations, proofreading, article writing, transcribing and many more at Fiverr.com. There are endless opportunities on the web these days you just have to find them. Do freelance work like translations, proof reading, writing articles, etc. on Elance.
6. Give up your car for a while and use public transport to save money on petrol, road tax and insurance. Public transport is cheaper than running a car. I know it is not convenient for others but sometimes we have to make cut backs when we are in debt. Once your debt is paid off, then you can use your car again.
7. De-clutter and sell stuff that you don't need that is just gathering dust in the attic or just cluttering your home.
8. Stop buying clothes and shoes for a while until you pay off your debts, make do of what you got. Buy from charity shops, sometimes they sell new expensive clothes and shoes cheaply.
9. Stop borrowing - don't borrow any more to pay off your loans or credit cards. Cut up all your credit cards and save for things you want to buy.
10. Stop smoking and drink sensibly - I know it is hard to give up a formed habit but you have to if you are in debt. Cigarettes, tobaccos, and alcohol are expensive to buy and they ruin your health. Alcohol is okay as long as you drink in moderation.
11. Start doing baby sitting for friends or people who have kids and get paid for it. There is quite a demand for babysitters.
12. Taking on lodgers or students if you have spare rooms or renting your garage or parking space in your home if you don't use it. We rented our spare bedroom for a few years and it helped us pay off our mortgage.
13. Do some private care works in the community. Lots of elderly people need someone to do their shopping or take them for hospital or clinic appointments or they just need some company for a few hours.
14. Pet setting - sometimes there are people who go on holiday but they got cats or dogs and they need someone to look after them when they go away.
Dealing with Debt
How do you manage your debt?
Some of the Creditors that I borrowed money from.
The importance of having a budget.
To be able to know how much money is coming in and going out each month you have to have a budget. In order to determine how much is left to offer to the creditors as well. When you are in debt, creditors would like to see your budget. Also for your own benefit, you want to see if you got enough money to buy food, buy clothes and shoes that you need, and to pay your utility bills. When you are in debt even if you got money coming, you are allowed by law to pay your priority bills first before you offer the left over money to pay your creditors. Priority bills are your mortgage, council tax, food, clothing and shoes especially children's school uniforms. These bills got to be paid before you offer some money left for your debts. The creditors know this by giving them your budget.