Our financial lifecycle cannot function without debt. You can build your dream house with it, helping you achieve essential life milestones. In contrast, the same debt can cause you mental distress by upsetting your financial peace if not dealt with properly. Healthy debt-to-income (DTI) ratios distinguish good debt from bad debt.
For debtors who are looking for free financial advice for their debt problems, there are several charities and non-profit organisations that can assist them. See more information about them below.
How much debt is too much?
You want to keep the debt as low as possible regardless of whether it’s good or bad. Maintaining financial flexibility for emergencies and life goals requires balancing liabilities and income.
At a point when you find it difficult to keep up with your loan repayments, you have likely reached debt saturation. To stay within the recommended debt-to-income ratio, try to not exceed 43%. If your debt to income ratio is above 43%, you might be experiencing a financial crisis.
5 signs you’re dealing with too much debt
You don’t know (or are in denial about) what you owe: Avoiding a problem or living in denial is not a viable solution in the long run, and doing it on purpose will only make matters worse. Although it’s a long fight, you have to start somewhere in order to win.
You’re accumulating debt to settle your dues: When you’re having trouble making ends meet and relying on friends, family, and pawnbrokers for cash or taking out cash advances to make payments, you’ve become overburdened.
You’re avoiding calls from debt collectors: When you ignore your debt for too long, creditor collectors end up contacting you to recuperate their money. The phone calls may stop, but things can fall apart if they decide to take legal action. Lenders can also pursue the legal route and summon you to court through a County Court Judgment (CCJ) issued in your name. A CCJ can adversely affect your credit profile, reducing your chances of obtaining credit in the future.
You’ve spent your savings towards your debt: You have a problem if you have spent all your savings while settling your balances. Even if you depleted your savings to tide over to the next month, it is equally problematic as using them to repay your debt. You may be forced to take on more debt to stay afloat or take care of an emergency based on your circumstances.
You need credit to survive: You know you’re in financial trouble when you use your credit card to buy household essentials. If you do not earn enough money to sustain your basic lifestyle, you are either spending too much or are not earning enough money.
Where to find free debt help?
You may end up making your debt problems worse if you hire financial advisers or debt management companies. Rather than paying for debt relief, consider these free services:
- Citizens Advice offers free in-person and telephone assistance.
- A debt management plan (DMP) offered by StepChange Debt Charity is free.
- You can get free debt management advice and set up a free DMP by calling the National Debtline.
- PayPlan provides a free data management platform.
- The shelter is a housing charity that provides in-person, online and telephone advice on various housing issues.
- Christians Against Poverty can help you budget your money and give you advice at your home.
- Civil Legal Advice offers legal assistance in a limited range of areas, including debt in which your home is at risk.
- Debt Advice Foundation provides individual debt counselling.
- The Debt Support Trust provides debt advice to residents of the UK. This program includes an online debt analyser.
- There are free resources and advice available from Business Debtline for both business and personal debts.
- You can get free debt advice from PayPlan. The advice is offered for free, but it’s a privately owned company.
How does personal debt help me?
You can do the following by getting advice:
- Prioritise your debts
- Make a realistic and practical budget
- Plan how you will pay off your debts
- Maintain communication with your creditors
Should I pay for debt help?
The type of debt management you need may depend on your financial situation. It is still worthwhile to seek debt relief from a debt charity for free in order to determine if they can help you clear your debts without having to pay any fees.
Before looking for assistance, here are a few things you need to consider:
- How much you owe: Request the outstanding balance from each lender.
- The interest rate and how much you repay each month: Confirm that with the lender.
- Any income you earn: Review your bank statement or payslip.
- The bills you need to pay each month: Be sure to check your bank statements and bills. You can use this information to determine your total debt and which debts you should pay off first. A financial adviser will also be able to get a clear picture of your financial situation if you seek advice.
Other ways to deal with your debt problem
You may be advised to set up one of the following when you receive debt advice:
- Administrative order: Through an administrative order, you pay back debts through a monthly payment that is determined by the courts based on your income.
- Individual Voluntary Arrangement: Court-approved individual voluntary arrangements (IVAs) involve monthly payments that are split between creditors.
- Debt Management Plan: With a debt management plan (DMP), you work out a repayment schedule with your creditors.
- Bankruptcy: In most cases, declaring bankruptcy should be your last resort. If you file a bankruptcy, it stays on your credit report for ten years or more, depending on the type of bankruptcy you file. Visit GOV.UK to gain better insight into each option.
No matter how you choose to pay off debt, be prepared for financial hardship. You must also monitor your expenses in addition to preparing a budget and allocating costs. Paying off your debts more quickly will help you maintain your good credit in the future.