Five Possible Solutions for Tackling Crippling Debt – Part Four: Debt Relief Orders

Debt Relief Orders - A bump sign on a road

Debt Relief Orders - Five Possible Solutions for Tackling Crippling Debt: Part Four - Bunchy the Budgeteer (Hand in the victory sign)

This series covers five possible solutions for tackling crippling debt.

Part one looked at Debt Management Plans, part two explored Administration Orders, and part three covered Individual Voluntary Arrangements.

In this post, I’ll explain Debt Relief Orders.

I’ll explain what they are and for whom they’re suitable. You’ll find out what you’d need to do to apply for one, and what having one may mean for you.

For a brief explanation of Debt Relief Orders, watch this video from debt charity Stepchange.

What Is a Debt Relief Order?

Debt Relief Orders (or DROs) may be suitable for people with total debts of under £20,000, with little chance of repaying them.

Although a Debt Relief Order is another form of insolvency and is legally binding, you won’t need to go to court.

Once granted, a Debt Relief Order freezes your debt for 12 months (known as the moratorium period). During that time, your creditors (people you owe money to) cannot take any further action against you. They can still add interest and charges. They shouldn’t contact you during those 12 months either.

Once the 12 months are over, if your finances aren’t improved, the debts included in the DRO get written off, cancelling them.

To be eligible for a Debt Relief Order, you must have little to no assets and little surplus income left over after covering your basic living costs.

There are other criteria to meet to apply for a Debt Relief Order.

Debt Relief Orders - Box files on shelves
Photo by Samuel Zeller on Unsplash

Full Criteria for Applying for a Debt Relief Order

To get considered for a Debt Relief Order, you must:

  • Not have debt above £20,000.
  • Be left with less than £50 a month left over after covering basic living costs.
  • Not own a property.
  • Have lived (or run a business) in England, Wales, or Northern Ireland in the last three years.

For people living in Scotland, look at the Minimal Asset Process (or MAP), which has different criteria and fees. You can read more on MAPs here.

  • Not have been involved in any other insolvency proceedings or applied for a DRO within the past six years.
    If any of your creditors have asked a court to make you bankrupt, you can ask the creditor if you could instead apply for a DRO.
  • Own less than £1000 worth of assets. Besides this £1000, you can also own one motor vehicle, as long as it’s not worth more than £1000. If the vehicle has been adapted for any disability of yours, then the cost of the vehicle doesn’t matter.

Assets that get counted towards the limit of £1000 include:

Jewellery (though not wedding rings).
Computers
Property/land.
Antiques
Savings and shares
Money owed to you (unless you’re unable to get it back from whoever owes you).

The worth of these assets is what you’d expect to get if you sold them, not the cost of what you paid for them.

Debt Relief Orders - Flat lay view of pink laptop computer
Photo by Majo Villalón on Unsplash

Assets that aren’t counted towards the limit of £1000 include:

Furniture
Bedding
Clothes
Items required for your job or business and essential household appliances you couldn’t manage without (e.g. a cooker).

A debt adviser will tell you which assets are or aren’t included.

Which Debts Can I Include in a Debt Relief Order?

Debts You Can Include in a Debt Relief Order:

  • Credit card debts
  • Store card debt
  • Catalogue debt
  • Loans
  • Overdrafts
  • Rent arrears
  • Buy now – pay later agreements
  • Business debt
  • Council tax arrears
  • Benefit overpayments (unless caused by dishonest behaviour)
  • Money owed to HM Revenue & Customs (e.g. National Insurance Contributions or Income Tax)
  • Utility bill arrears
  • Phone bill arrears
Debt Relief Orders - credit card
Photo courtesy of Dreamstime

Which Debts Can’t I Include in a Debt Relief Order?

Debts You Can’t Include In a Debt Relief Order:

  • Magistrate court costs
  • Student Loans
  • Child maintenance and child support payment arrears
  • Social fund loans
  • Confiscation orders
  • Compensation for injury or death
  • Television licence arrears

A debt adviser will tell you which debts are or aren’t included.

How Do I Get a Debt Relief Order?

Only an authorised debt-management adviser can organise a Debt Relief Order for you.

Only the Insolvency Service can grant Debt Relief Orders.

Debt Relief Orders - Silhouette of woman at window
Photo by Spencer Pugh on Unsplash

Does It Cost to Set up a Debt Relief Order?

To get a Debt Relief Order you must pay a fee of £90. You may be able to get help from a charity to cover the cost.

Are Joint Debts Included in a Debt Relief Order?

On your application, you must include the full amount of any debts you share with another person. This will count towards the limit. Once your Debt Relief Order ends, your responsibility for the debt gets cancelled. The other person will still be responsible for the debt.

Can My Debt Relief Order Get Cancelled?

Your Debt Relief Order could get cancelled if your finances improve and you have more than £50 a month after covering basic living costs. There are several other reasons for having your DRO revoked, which you can find here.

Debt Relief Orders - Cartoon figure stood behind a large red x

Other Considerations Before Applying for a Debt Relief Order

There are restrictions you must adhere to while under the Debt Relief Order.

These restrictions mean you can’t:

  • get credit for more than £500 without telling the lender you have a DRO
  • act as the director of a company

For a full explanation of restrictions, look at this page by Citizens Advice.

During your Debt Relief Order, you still must pay your rent, bills and any debts not included in the DRO.

Your Debt Relief Order gets added to the Individual Insolvency Register. It’s removed three months after the DRO ends.

Your Debt Relief Order will stay on your credit record for six years. You may find it difficult to get credit during this time.

Citizens Advice have more information on DROs.

I hope this post was helpful for you. Is a Debt Relief Order something you’d consider? Have you ever been under a Debt Relief Order? What’s been your experience?
 
In the final part of this series, I’ll be covering bankruptcy.
Debt Relief Orders - Road sign with the word bankruptcy on it

Remember, the information on my blog isn’t financial advice.

You should consult a dedicated professional when making important financial decisions.

If you find yourself overwhelmed with money worries, please seek help from any of the following organisations:

Debt Advice Resources:

The Money Charity
National Debtline
Citizens Advice
StepChange

I love hearing from you and want to grow this community. Don’t be shy! Comment, contribute to the Facebook page, send me a private message or all three! I will always try to help you.

Lisa aka ‘Bunchy’

Five Possible Solutions for Tackling Crippling Debt – Part Three – Individual Voluntary Agreements

Handshake. Five Possible Solutions for Tackling Crippling Debt - Part Three - IVAs

This series covers five possible solutions for tackling crippling debt. Part one looked at Debt Management Plans. while part two explored Administration OrdersIn this post, I’ll explain Individual Voluntary Agreements.

I’ll explain what they are and for whom they’re suitable. You’ll find out what you’d need to do to apply for one, and what having one may mean for you.

If you want a quick video explanation of Individual Voluntary Arrangements, watch this video by StepChange.

What Is an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement (IVA) is a form of insolvency. Due to this, it’s essential to get advice from an impartial professional beforehand. You can find resources at the end of the article.

An IVA is a legally binding agreement between you and your creditors (those you owe money to). You agree to make a complete or partial repayment of your debts via regular, affordable payments to a qualified Insolvency Practitioner (IP).

You pay 60 or 72 payments over five or six years. The IP divides the money among your creditors.

During this time, your debts get frozen. As long as you stick to the agreement, your creditors can’t contact you or take further action against you.

At your final payment, any outstanding debt gets cancelled. You’ll receive a ‘certificate of completion’.

Individual Voluntary Arrangements are only available to residents of England, Wales or Northern Ireland.

IVAs aren’t available in Scotland, but Scottish residents can consider Protected Trust Deeds. Although a similar alternative to an Individual Voluntary Agreement,  a Protected Trust Deed has its own pros and cons; and different fees. You can read more about Protected Trust Deeds here.

Question mark in lights - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Arrangements
Photo by Emily Morter on Unsplash.

How Do I Get an Individual Voluntary Arrangement?

An IVA can only get set up by an Insolvency Practitioner. You must prove to them that you have a regular and ongoing income and give them financial details such as your debts, your creditors, and any assets you have.

Your Insolvency Practitioner sees what debt payments you can afford to make and will help you compile a proposal. They then give the proposal to your creditors.

Two men at business meeting - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Arrangements
Photo by Helloquence on Unsplash

What Happens Next?

The Insolvency Practitioner will contact your creditors with your proposal.

Your creditors may ask you to alter the proposal before they’ll make an agreement with you. If this happens, the meeting adjourns for 14 days, giving you time to decide. If you agree to the changes, the IVA will start on the date of the next meeting of creditors.

You can’t force your creditors to agree to the IVA. However, if the creditors that hold 75% of your debt agree with the plan, the IVA will go ahead. The IVA will apply to each included creditor even if they didn’t agree to the proposal.

Open diary - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Eric Rothermel on Unsplash

Which Debts Can I Include in an IVA?

  • Catalogue debts
  • Council tax arrears
  • Credit card debts
  • Debts owed to family and friends
  • Gas and electricity arrears
  • Money owed to HM Revenue & Customs such as Income tax and National Insurance arrears
  • Overdrafts
  • Payday loans
  • Personal loans
  • Store card debts
  • Tax credit or benefit overpayments
  • Water bill arrears
  • Any other outstanding bill, such as legal bills and veterinary bills
University graduate - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Cole Keister on Unsplash

Which Debts Can’t I Include in an IVA?

  • Child maintenance or Child Support arrears
  • Court fines
  • Hire purchase agreements
  • Mortgages and secured loan arrears

Although you are allowed to include mortgage (and rent) arrears (and other secured loans against your property), your creditors must agree to it and they often won’t.

  • Rent arrears
  • Social fund loans
  • Some types of car finance
  • Student loans
  • TV Licence arrears
Man and woman holding hands - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Artsy Vibes on Unsplash

Can I Set up a Joint IVA?

An IVA is an Individual Voluntary Arrangement, so can only be in one person’s name.

Things to Consider About Joint Debts:

  • Your individual IVA can include joint debts (debts that include both yours and another’s name).
  • Any joint debt included in your IVA will still need the other person to continue to make regular payments. If you have some of the debt written off, the other person must pay any outstanding debt.
  • Although a joint IVA isn’t possible, an Interlocking IVA might be suitable for you and any person you with whom you share debts.
  • An interlocking IVA involves you both having an IVA set up at the same time, with any joint debts listed in your individual proposals.
  • Between you, you make regular joint payments. When your IVAs have ended, any joint debts get cancelled.

To read more about interlocking Individual Voluntary Agreements, click here.

Hand holding bank card - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Michal Jarmoluk on Unsplash

Does It Cost to Set up an Individual Voluntary Arrangement?

No matter who you set up your IVA with, you will need to cover fees. How much these are and when they’re payable depends on who you use.

These Fees Are:

  • a nominee fee, for setting up the IVA.
  • a supervisor fee, to cover the on-going administration costs of the IVA.
  • disbursement fees, which cover expenses paid to third parties during your IVA. These cover such things as the cost of insurance to protect money paid to your IVA and for the registration of your IVA with the Insolvency Service.

Depending on who sets up your IVA, you may not have to pay any fees in advance, but instead, have them deducted from your monthly debt payments.

Stop sign - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Kai Pilger on Unsplash

Can I Cancel an Individual Voluntary Arrangement?

An Individual Voluntary Arrangement is legally binding. Once made, neither you nor your creditors can cancel the agreement. Get professional advice to check that an IVA is right for you.

Hands holding smartphone by laptop - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by William Iven on Unsplash

What Happens If I Don’t Keep up with My IVA Payments?

If you don’t keep to your repayment schedule:

  • your Insolvency Practitioner may cancel the IVA and make you bankrupt.
  • your creditors might backdate any frozen interest on your debts.

If you find yourself in altered circumstances that make it difficult to make your repayments, you can ask your creditors to review the terms you’d agreed to in the original proposal.

Hands holding chocolate coins - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Sharon McCutcheon on Unsplash

What Are Lump Sum IVAs?

Lump sum Individual Voluntary Arrangements may be a choice for those who have a lump sum of money to pay towards their debt. This may be money from:

  • a friend
  • an employer
  • a relative
  • the sale of a property
  • an insurance claim
  • a redundancy settlement

An available lump sum of money might enable you to agree to a much shorter IVA. (A typical lump sum IVA lasts for six months, but this depends on individual situations).

You may either be able to pay one ‘full and final’ settlement amount or part lump sum with several payments thereafter.

The lump sum IVA carries the same risks and benefits as a regular payment IVA.

Two front doors on a British terrace - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Gleren Meneghin on Unsplash

Will I Have to Sell My Home?

As long as you keep up mortgage payments and any other loans secured on the property, you won’t be forced to sell your home. However, if there’s any equity in the property, you may be requested to re-mortgage six months before your IVA is due to finish. If re-mortgaging isn’t possible, you’ll get asked to make a further 12 payments.

Monies received from a third party may be used to make a lump sum payment equal to the value of any equity in the property.

Re-mortgaging may mean a higher interest rate.

Classic car - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Clem Onojeghuo on Unsplash

Will I Have to Sell My Vehicle?

As long as your vehicle make and model is a reasonable price, you should be able to keep any car or motorcycle, etc, when setting up an IVA.

Hands working with tools - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Quino Al on Unsplash

Will an IVA Affect my Job?

Although unlikely, it’s possible that having an IVA could affect your job. It’s more likely for those in senior roles, such as:

  • Company directors.
  • People in certain professions, such as accountants.

If this concerns you, it’s best to check with any professional membership body, HR department or union.

Other Considerations Before Applying for an Individual Voluntary Arrangement

  • Your IVA gets recorded on the public Individual Insolvency Register. It’s removed three months after the IVA ends.
  • Your IVA will show on your credit file for six years after the date the IVA begins.

While your IVA remains in either of these two places, getting credit may be difficult.

  • Throughout the duration of your IVA, you’ll undergo yearly reviews. If your finances improve, you may get asked to increase your monthly payment.
  • At your last payment, any remaining debt included in the IVA gets cancelled.
  • Only the debts included in your IVA will get written off at the end of the agreement. You must repay any other debts you have.

For more information on IVAs, check out this webpage by Citizens Advice and this handy PDF by StepChange.

 

Please remember that the information on my blog doesn’t constitute advice. Important financial decisions should follow a consultation with a dedicated professional.

Public Telephone - Five Possible Solutions to Crippling Debt – Part Three - Individual Voluntary Agreements
Photo by Clem Onojeghuo on Unsplash

If you find yourself overwhelmed with money worries, please seek help from any of the following organisations:

Debt Advice Resources:

The Money Charity

National Debtline

The Money Advice Service

Citizens Advice

StepChange

I love hearing from you and want to grow this community. Don’t be shy! Comment, contribute to the Facebook page, send me a private message or all three! I will always try to help you.

Lisa aka ‘Bunchy’

Five Possible Solutions to Crippling Debt – Part Two: Administration Orders

Chain link fence

Last week I posted the first in a series of five possible solutions for tackling crippling debt. If you’re having debt problems, read that post too. In this post, I will show you another possible solution for getting debt under control; Administration Orders. I’ll explain what they are, what criteria you’d need to meet to get one; and what to expect if you’re granted one.

What Is an Administration Order?

An Administration Order is something the County Court grants, to give you a way of handling debts you’re having trouble repaying.

An Administration Order is legally binding. Once it’s set up, your creditors (people you owe money to) won’t be able:

– to contact you or take any further action against you (unless the court gives them permission).

– to add any more interest or charges to your debt.

The Order involves your debts being dealt with as one. Instead of you paying your creditors, you’ll pay the court a single monthly payment; which they’ll then split between your creditors.

How Do I Get an Administration Order?

For the court to consider you for an Administration Order you need to say yes to the following questions:

– Do you live in England, Wales, or Northern Ireland? Administration Orders aren’t available in Scotland.

– Do you hold debts with at least two creditors?

– Has at least one of your debts involved a County Court or High Court judgment being made against you?

– Is the total of your debts, including the interest and charges under £5,000?

– Can you show you’re able to make regular payments?

If you said ‘yes’ to the questions above, then you have to fill out an N92 form (which you can view and download from here) and send it to your local court. On the form, you must give details such as your income, your outgoings, a list of your creditors; and how much your debts are.

bird's eye view of somebody working at a desk.
Photo by William Iven on Unsplash.

What Happens Next?

Once the court receives your N92 form, they’ll review it and decide whether they’ll grant you an Administration Order. A court hearing might be necessary. They must look at things such as how much you can afford after paying for your basic living costs.

Depending on whether the court grants you an Administration Order, you’ll get told:

– if every one of your creditors is included in the Order (certain creditors might ask that they’re left out. If this happens, the judge might order a court hearing to decide. Sometimes council tax arrears and criminal fines get left off the Order too).

– whether you must pay all or only part of the debts listed in the Order.

-how much you must pay the court every month (it can sometimes be as little as £1 per debt).

– how long the Administration Order will last.

Hands holding bank notes
Photo by Niels Steeman on Unsplash

Will It Cost Me to Set up an Administration Order?

It won’t cost you to set up an Administration Order, but for every payment, you make to the court, 10% gets deducted as a court fee. However, the total fee across the whole Administration Order isn’t allowed to be over 10% of your debt. So, for example, if you owe £4000, the court can’t take any more than £400 in court payment fees.

Can I Cancel an Administration Order?

You can ask to cancel your Administration Order or to change your monthly payments, by writing to the court. You might have to attend a court hearing.

Composition Orders

A Composition Order sets a date for when your Administration Order will end. This is usually after three years. When you get to this date, your creditors cancel any debt you still have with them.

The court might consider a Composition Order if:

– you can only afford to repay a small sum towards your debt each month.

– your payments won’t settle your debts within a reasonable time.

If a Composition Order isn’t granted by the court, then your Administration Order will run until you’ve repaid your debts.

Calendar

What Happens If I Don’t Keep up with My Administration Order Payments?

If you don’t make your regular payments, then the court could:

– cancel your Administration Order.

– order an ‘Attachment of Earnings Order’.

An Attachment of Earnings Order is a demand the court makes of your employer, to take money out of your wages to repay your debts. If this happens, your employer could take a £1 administration charge each time they do the pay deduction. The court sets a ‘protected earnings rate’ for you. This means you’re guaranteed a set amount of pay before any money’s taken out by your employer.

Attachment of Earnings Orders only apply to residents of England and Wales and don’t apply if your debt is under £50 or if you’re:

– unemployed,

– self-employed,

– in the Armed Forces,

– in the Merchant Navy

Businessman working on his tablet
Photo by Olo Eletu on Unsplash

Other Considerations Before Applying for an Administration Order

– when your Administration Order starts, it’s recorded on the Register of Judgments, Orders and Fines. It’s usually taken off after six years.

– your Administration Order will be on your credit file for six years too.

– during the time that a record of your Administration Order remains in these two places, you’ll find it harder to get more credit.

– if you pay your debts in full, your record gets marked as ‘satisfied’.

– if you want to, you can pay the court £15 to get a ‘certificate of satisfaction’.

While researching Administration Orders, I discovered that they’re not often used anymore. I found that Debt Relief Orders are often more suitable and affordable. I’ll explain Debt Relief Orders in part four. If you want to research them now, have a look at this.

I hope you’ve found this information helpful. Is an Administration Order something you would consider? Do you think they’re a good solution for tackling crippling debt? What do you think is the best way of dealing with debt? Or are you living a debt-free life? Was it always that way? If you know of anyone who could benefit from reading this post or any of the parts in this series, then please feel free to share the post with them.

Debt Advice Resources:

The Money Charity

The Money Advice Service

Citizens Advice

StepChange

I love hearing from you and want to grow this community. Don’t be shy! Comment, contribute to the Facebook page, send me a private message or all three! I will always try to help you.
 
Lisa aka ‘Bunchy’

Five Possible Solutions to Crippling Debt – Part One: Debt Management Plans

Five Possible Solutions to Crippling Debt - Part One

We’d all prefer to live without debt, but for most Brits, it is not the reality. When debt repayments become difficult to make that’s when disaster can strike. In this series, I will explore five possible solutions to crippling debt, beginning with Debt Management Plans. 

According to their latest research, Comparethemarket.com says:

‘The average person with debt is in the red by over £8,000 (excluding mortgage repayments)..’

Today, debt is widespread. Years ago, people were very ashamed of having debt. Now it’s unusual not to carry any (non-mortgage) debt.

The effect of having challenging finances and spiralling debt can be profound. If you find yourself overwhelmed, please seek help from any of the organisations listed at the end of this article. They are there to help you.

Not all options in this series will suit your circumstances. Please seek professional advice.

Five Possible Solutions to Crippling Debt - Part One
Photo: Ben Rosett on Unsplash

Part One in This Series Looks at One Possible Solution to Crippling Debt – Debt Management Plans

A Debt Management Plan (or DMP) is an agreement made between you and your creditors to repay your debts.

You pay the organisation one monthly payment who then apportion it among your creditors.

The debt-management organisation calculates what you must pay. They base this on what you can afford.

Once a DMP is in place, most debt management organisations will continue to communicate with your creditors so you need not do it. This may be a great relief to you if hearing from creditors is causing you stress.

A Debt Management Plan may be useful to you if what you can afford to pay each month is less than what you’re paying now.

Five Possible Solutions to Crippling Debt – Part One
Photo: Michal Jarmoluk

DMPs Aren’t Suitable for Every Debt

A Debt Management Plan can only include ‘non-priority’ (less urgent) and unsecured debts, e.g.:

  • Credit card debt
  • Overdrafts
  • Home catalogue debts

It cannot include ‘non-priority’ (more urgent) debts, e.g.:

  • Mortgage arrears
  • Council tax arrears
  • Energy bills.

So you need a separate plan to tackle any ‘priority’ debts before setting up a DMP.

Five Possible Solutions to Crippling Debt - Part One

Are Debt Management Plans Free to Arrange?

You can pay a company a fee to set up and manage a Debt Management Plan for you. Sometimes, they’ll take part of your payment as a handling fee each time they pay your creditors. There are money advice organisations and charities that will take care of this for free. By talking to an experienced debt adviser, you can also get help to see if you’re entitled to any benefits or allowances. If you pay a company to manage your DMP, please make sure they are Financial Conduct Authority (FCA) regulated.

You will give the debt management organisation information about:

  • what you owe and to whom,
  • your income,
  • any assets, etc.

They will then contact your creditors and see if they’ll agree to the repayment plan. Even if they agree, unless it’s stipulated in the agreement, your creditors could demand full payment of the debt at any point.

Five Possible Solutions to Crippling Debt - Part One

If You Have Joint Debts

When you have a joint debt with somebody, you can include that debt in the Debt Management Plan. If you’re both having trouble repaying your debt, then you could consider setting up a joint DMP. Couples each with individual debts can include these too.

If you don’t keep up your DMP payments, the plan may be cancelled. Therefore, it’s important that you understand what you will be committing to paying.

Five Possible Solutions to Crippling Debt - Part One
Photo: picjumbo.com from Pexels

Other Things to Consider Before Setting up a Debt Management Plan

  • Your creditors don’t have to agree to a DMP, (though many often do).
  • As you’ll be paying a lower amount each month, the total debt will take longer to repay.
  • Your creditors may decide not to freeze the interest or charges on your debt. This means it’ll take longer to clear.
  • The Debt Management Plan will show on your credit record. This might mean getting future credit more difficult.
  • DMPs aren’t binding, so you can stop it at any point.

If you’d like a video explanation of Debt Management Plans, this short video by debt charity StepChange explains.

Five Possible Solutions to Crippling Debt - Part One
Photo: Negative Space on Pexels

Debt Advice Resources:

The Money Charity

The Money Advice Service

Citizens Advice

StepChange

I’d be very interested in how many people know of Debt Management Plans. Had you heard of them before this? Is it something you would consider? Ever used a DMP yourself? Was it helpful? If you’re not comfortable leaving a public response, then you can send me a private message here.

I love hearing from you and want to grow this community. Don’t be shy! Comment, contribute to the Facebook page, send me a message, or all three! I will always try to help you.

Lisa aka ‘Bunchy’

Money – Where On Earth Should I Begin?

'Relax' sign

Or ‘How to Sort Our Your Money Mess’

Where on earth should I begin?‘ This is something I’ve been asking myself when thinking about starting this blog. It’s also something most people ask themselves when they make the decision to get a handle on their finances.

Mr.B and I don’t use credit cards or any sort of credit. We do have debt, however, in the form of a mortgage. This is often referred to as ‘acceptable debt’, but to us, we won’t fully relax until that bad boy is paid off. It’s going to take a long time, but we’re determined to get it paid off early-(er). That being said, in the past, we have each taken out loans, have bought items from catalogues and thankfully, we didn’t encounter any problems that caused us to get behind on payments. It could so easily have happened though.

You may have credit card debts that are mounting up or you may be having sleepless nights due to being behind on your electricity bill. So where should you begin?

Difficult Choices

Ok, so let’s get real. Getting behind on any bill is a worry and will have to be addressed at some point. I’ve had many close family and friends dealing with debt. Growing up, it was a way of life. I remember as a little girl, having to hide and keep quiet when the debt collector was knocking at the door. I remember having to answer the door at times, after being told to lie and say that my mother wasn’t home. I also remember having our gas and water cut off. Sort of tells you why I’m passionate about personal finance, right?

Some debts appear to cause more problems than others, such as those debts that cause the phone to keep ringing, with creditors hassling you to pay up, and you may be tempted to address these first, to the detriment of other areas. Robbing Peter to pay Paul? Yeah, sometimes Paul’s going to have to wait.

If you find yourself having problems with unsecured debt such as credit cards and loans, but you’re also behind with your mortgage or rent, you need to prioritise paying to keep a roof over your head, no matter how many times those credit card people are calling you each week.

Get Your Basics Covered

One of the great voices in personal finances; Mr Dave Ramsey calls this sorting out your ‘Four Walls’. These are the areas you must take care of before anything else:

Food

We all have to eat. This is priority number one. Potatoes and bread are needs. Biscuits, crisps and eating at McDonald’s are wants. Sorry, I love junk food too, but you know it’s true.

Housing 

This comes next. If you can’t keep a roof over your head, then you’re stuffed. Talk to your landlord, mortgage company or council, make an agreement and get up to date on those rent or mortgage arrears. This section also refers to your Council Tax and your basic utilities, such as gas, electricity, and water. Internet and TV subscriptions aren’t part of this, as, though it may be painful to cut them out, they obviously aren’t a need.

Transportation

If you work, you need a way to get there so that you can keep earning. This may mean making sure that you can put fuel into your car every month, or be able to afford your bus fare/travel card.

Clothing

This means covering the basics to keep you and any children warm and with adequate shoes.

Once you have all of these areas covered, then you can begin to look at what you have remaining each month. Only then should you begin to address your other bills. I’ll cover tackling unsecured debt repayment in another post.

Please never lose hope. There is always a way out of debt, but it needs careful thought, planning and to be thought of as more of a marathon and not a sprint. If you ever find yourself feeling desperate, please consider using Citizens Advice and National Debtline to talk to somebody about it. Finally, if I can help in any small way, please send me a message.

'Relax' sign - Money – Where On Earth Should I Begin? | How to Sort Out Your Money Mess
Original photo courtesy of Dreamstime.com

I love hearing from you and want to grow this community that is gradually getting bigger. Don’t be shy! Comment, contribute to the Facebook page, send me a private message or all three! I will always try to help you.

Lisa aka ‘Bunchy’