The new year is a good time to tackle your debt and come up with a strategy to blitz those bills.
Here, we talk to Eugene McDarby from moneyvillage.ie. He has spent the last year dealing with heart-breaking stories of people unable to cope with debt as the recession bites.
His tips are similar to those offered by the likes of the Money Advice and Budgeting Service (MABS).
If you want more advice on issues relating to debt, or, say, your legal rights, or how to revise your budget, or create a financial statement go to the personal debt section on the site by using the top navigation tabs. Or click here.
The following tips refer only to your unsecured creditors such as credit-card companies, store cards, student loans, and other loans such as overdrafts or personal loans.
What to do to clear your debt
1. Don’t make the mistake of ignoring demand letters or phone calls from unsecured creditors. Contact them as soon as possible ideally by phone first. Even if this is just to say that you want to work out a suitable repayment plan.
2. Discuss every conceivable option to allow you to pay the minimum amount possible based on your income and expenditure.
3. Always, always ask them to temporarily freeze the interest and late repayment charges as they are adding to your loan and because of this it can affect your ability to pay what they are demanding. Negotiate!
4. Ask them not to issue any legal proceedings until every available option is looked into.
5. Be honest about your present circumstances and calculate exactly the amount you can afford to pay after you deduct household costs e.g. mortgage, utility bills, family groceries and children’s costs. You need to work out how much you can afford to repay towards your loans and you should distribute what you can afford evenly amongst them pro-rata to how much you owe.
6. If you have lost your job you may have to appoint a debt-management company to negotiate to allow you breathing space to clear the debt.
7. Keep a record of everything, including phone calls from both sides. Ideally write to the creditor after agreement is reached by phone to document discussions properly.
What not to do to clear your debt
What can make your problem worse:
1. Ignoring the debt problem is one of the main causes of escalating debt as interest on outstanding loans mount up.
2. Failure to work out a budget because you feel the situation is so hopeless.
3. Using credit cards to fund other debts.
4. Reacting too quickly to creditors who ‘shout the loudest’ as opposed to dealing with the most serious debt i.e. mortgages.
5. Forgetting to include occasional items such as school expenses, Christmas etc. when working out a budget.
6. Being unrealistic about basic needs such as food, fuel, clothing etc – many families, when paying too much per month to outstanding creditors, have little or no money left for day-to-day living.
7. Not informing your creditors that you are in difficulty.
8. Even worse not communicating with them at all, and hoping the problem will go away.
9. When a deal is struck with a creditor, not maintaining the agreement makes the situation even worse.
10. Borrowing money to pay off existing debts. This just increases your outgoings and delays the problem.
11. Not attending court hearings or having representation.
12. Not prioritising mortgage and rent repayments – the most important debt of all. Your home should be the number-one debt on your agenda.
13. Divorce or separation is a major contributory factor to increased debt.
14. Bad health prevents you from dealing with a very difficult stressful situation – this can cause further health problems.
15. Debt problems as a result of tax defaults – especially if you are a sole trader where their business overdraft was ‘personally guaranteed’.
More information
RTÉ Money: How I got out of a personal debt nightmare
Listen back
January 22 2011: Michael Culloty of MABS and personal finance journalist Jill Kerby talk to Marian Finucane about dealing with personal debt
