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Being in debt (one that you can’t easily pay off) sucks, right? When you’re so deep in debt that even paying the interest is too much – this is a hellish situation.
I’ve been there – I can remember the pain of feeling helpless, and that sensation in the back of my mind every time I woke up. But I was lucky (sort of) as I had a property I could (and had to) sell to pay off the debts – it was a last straw but it was also a lifeline. I know, many people in heavy debt don’t have that luxury.
Means wasn’t the only luxury I had. I also had the benefit of a financial eduction. I knew what I was getting into and therefore could (eventually) navigate a way out. Many people don’t know where to turn, or what their options are. So debts build up, and then they find…
- there is nobody left to borrow from
- credit and store cards are maxed out to the hilt
- interest payable is more than they earn
- sleepless nights and a feeling of helplessness
- poor health and fractured relationships
For more signs of a person in debt, have a look at this post. A person in heavy debt may appear anxious, worried, depressed or withdrawn, and you could notice changes in their weight or appetite
So what to do?
Here are some great tips from Truman Advisors.
Stop Getting into More Debt
So obvious it needn’t be said, right? Well you’d be surprised at how few people really do this. But not always by choice. It’s well documented that payday loans are ruthlessly priced on interest rate. You’ve seen the TV ads – interest rates in the 1,000s of %. Can you believe that there is one case where a borrower was subject to 16,734,509.4%. interest…? Gob-smacking. What’s unbelievably scary, though, is that some people get into a viscous cycle with loans like this – believing that payday loan companies are the only source of funds so more is borrowed to service the previous debts. With perspective, it’s easy to see that the logic fails with this strategy, as each loan is another layer of debt. But when you’re in that cycle… and of course the lenders are only too happy to help. Responsible lending? What do you think.
Truman Advisors say: Switch to Lower Interest Debt
The high-interest loans (like payday loans) are meant only for short-term purposed. High-interest, brief term. But when they’re used for the long-term, the borrower really must switch to a lower interest option. Even when the outlook may be that the borrower will be facing into the debt for a much longer period, chances are, it at least will be serviceable. Sure, to be granted one of these loans you may need to secure it against property, but weigh up the options and find the best way to secure it.
Be cautious of title loans on automobiles – these are not always the best option. Look at it this way – if you lose your transport to your workplace, how will you earn a living and pay off the debt? This is a risky strategy and could result in you becoming even worse off, without a job and transport. Title loans are still meant for short-term purposes and not intended as long-term credit solutions.
Debt Management Plan – what is it and is it the answer?
A Debt Management Plan (DMP) is designed to help you to pay off debts at a rate you can afford and aimed to solve personal debts such as credit card, store cards, personal loans (e.g. payday loans) and overdrafts. They’re provided by specialist companies who help borrowers negotiate an affordable payment plan with their creditors.
They’re an intermediary between you and the lenders you owe money to – you make a single, predictable monthly payment to the plan provider, and in turn they pay your creditors for you. When you take out a Debt Management Plan, you have a more steady payment schedule at lower interest rates, and your lenders have more confidence that your debts will be paid off without sending threatening letters or sending out aggressive bailiffs.
The kind of debts a DMP can help you with are:
- bank or building society loans
- credit card, store cards or those dreaded payday loans
- catalogue/home shopping, home credit or in-store credit debts (e.g. buy now, pay later credit from furniture stores)
- overdrafts with your bank
- personal loans
- even money borrowed from other people such as your friends or family
A DMP isn’t for you if you’re in debt to:
- TV Licence
- Household bills (gas/electricity)
- Court fines
- Income Tax and National Insurance
- Stamp duty or Capital Gains tax
- VAT or Corporation Taxe
- Council Tax
- Child support/maintenance
- Any other loans secured against your property
- Hire Purchase
- Loans on essential/priority purchases
Truman Advisors: Be courageous and take action
Making that first step in solving your debt crisis is the most important one of all. Until action is taken and followed-through, the debt will continue to cycle and grow. There is no option of paying lip-service to your debts.
A practical first step might be to look at an online debt health check/analyser – which will help you understand the priority call and where to start. For example:
- The Debt Support Trust have a free, confidential online debt analyser
- The Money Advice Service offer a free debt health check tool
Or talk to a specialist debt management company, if you’re really stuck. It’s a daunting thing to make that call. But most of these companies are staffed by experienced, friendly people who understand your situation (they’ll have seen it before!) and they’ll have the solutions for decisive action. They won’t judge you. Look for companies who offer these services that have a strong online and offline reputation. Don’t feel you have to use the first company you speak to – it’s important to build a connection with the people who are going to help you so that you can build trust and confidence.