Avoiding personal insolvency

Troubled economic times are often hardest on the people who were struggling to get by already.  Here are  tips to help you address the situation and decide if insolvency is the right course of action for you.

Understand exactly where your money is going right now.

Many jokes revolve around assumptions but in real life debt-management is a serious matter.  You may think you know where your money is going (and you may be right) but you need to know exactly.  Exactly in this instance means doing more than just looking at your bank statements (although that’s generally the best place to start) and seeing, for example, not just that you made a trip to the supermarket, but also knowing precisely what you bought at the supermarket – was every item a necessary purchase?  If you took out cash at an ATM, what did you spend it on?  You may need to spend a month or two on this exercise before you get a clear picture of  your spending habits.

Realistically compare your income with your essential expenses

The key word here is realistically.  Some expenses are fixed (housing, council tax, insurance payments…) and some are generally much the same each month (credit card repayments) but some can vary (grocery bills) and it can be tempting to try to reduce these drastically to repay debts.  In reality however, a financial plan which relies on you eating beans on toast 3 times a day, every day and sitting in the dark without heating of an evening, is unlikely to work as a long-term solution.  In simple terms, if your income is insufficient for you to pay your debts and have a decent, basic standard of living, then you need to make a change.  You either need to increase your income, find some other way of paying off your debts (e.g. selling assets until the debt is reduced to a manageable level) or consider an alternative solution, which could be anything from an Individual Voluntary Arrangement (IVA) through to a more formal option such as bankruptcy.

Draw up a realistic budget

Once you have understood your income and expenditure, create a budget which is realistic – it goes without saying that a budget will only help you if you are actually able to stick to it! Ensure you allocate enough cash to enable you to actually live but it is important to identify areas where you can cut back.

See if you can stop direct debits and pay manually

If you are struggling to keep control of your money then it can help to pay essential expenses when you receive your wages, even if this is before they are due.  That way you avoid the risk of spending the money on something else.  For example, if you get paid on the 28th and you have credit-card payments due on the 1st and 4th of the month, then you may wish to stop paying by direct debit and make manual payments on the 28th, when you get your wages.  If you do this for as many essential bills as you possibly can, then you know that the money which is left is all you have to spend for the rest of the month.

See what you need to do to get more affordable credit

If you have an impeccable payment history over the long term, then you may be able to get lower-cost financing, which will not only lower your monthly payments, but also reduce the money you pay back overall.  If you do not, then you may find that you need to clear up your credit record substantially before you are offered a better deal.

Consider alternative options

Thankfully in this day and age, there a wide range of solutions available to help people escape unmanageable debt. No matter how dire you feel your circumstances may have become, there are always options to help you get back on track. The key is to ask for help when you need it, before your debts spiral out of control. If you would like to have a free, confidential chat with our team, feel free to call on 0800 246 1845.