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How to prioritise bills and other expenses

30th August 2011

The financial information company Markit have released their latest monthly report on household finances. In recent months (as discussed in Trust Deed News previously) the survey has demonstrated how the majority of UK households are reporting reduced disposable income as bills and other costs rise. The August report has identified acceleration in this trend; 40% of households said they were poorer than a month before and only 6% said their circumstances had improved. Available disposable income is falling at the fastest level since the survey began. Getting a trust deed is becoming an unfortunate necessity for some residents of Scotland in this climate.

Many of the respondents also reported that their debts had increased or their savings reduced. With the Bank of England forecasting that inflation could reach 5% this year the likelihood is that things will get worse before they get better. For many, researching getting a trust deed is may become necessary unless the economy improves.

The question thus arises; if a household can no longer manage all of their bills and other expenses what can they do prior to looking into getting a trust deed or entering other serious debt measures?

The first part of the answer to this question is that it may depend on circumstances. If a family is experiencing a short-term drop in income (perhaps because of redundancy for example) the use of credit may be perfectly understandable and sensible. Credit can be incredibly convenient and useful in this respect when it’s genuinely expected that things will soon improve. A trust deed would not normally be appropriate to deal with a short-term issue.

Where there is little likely prospect of an improvement the situation is very different. A continued build-up of debt is likely to make things worse rather than better and could result in the need for a trust deed or other debt resolution methods.

The first priority is to pay your mortgage or rent in full. Keeping a roof over your head is priority number one and therefore a mortgage or your rent should be the last thing to go into arrears.

The second set of priorities is fundamentally important services and bills. Your gas and electricity should be paid in full for example as they’re vital needs. The same is true of your Council Tax or other taxation-related bills; HMRC (or your Local Authority) has far more potent debt collection powers than the average bank or credit card company and in general will pursue you for debts sooner and harder as a result.

Also highly important is the purchase of food, necessary clothing, petrol to get you to work, insurances for things you could not afford to lose and so on. Repayments on debts such as credit cards should not be made until funds for these essential purchases have been set aside.

Is there enough money left to pay your credit cards or bank loan? For many people the answer is that there simply will not be enough money left. In itself this should neither be cause for panic, nor should it cause you to break the rules of prioritisation set out previously in this article.

Unless you can find a new sustainable source of increased income the situation simply “is what it is”; no matter how much you may wish to repay your debts you cannot pay out money that you do not have.

This is the point at which to discuss your situation with a professionally qualified debt or trust deed adviser. They will follow a similar process to the one outlined in this article when reviewing your circumstances; no matter how serious your debts are a trust deed adviser will seek to prioritise your housing payments, energy bills, Council tax, food, clothing and essential travel to make sure that your life can continue in a comfortable and secure way.

If they agree that there isn’t enough money to pay for your priorities and your full unsecured debt repayments they will suggest alternatives to you, including the option to get a trust deed where appropriate. Their analysis of whether a trust deed or other options are best for you will in part be driven by how much you have left after your priority and essential costs are covered.    

If you are concerned about your finances and are looking for professional assistance, we can answer all your trust deed related queries and questions. Our helpful, professional staff are available on 0800 043 7201 or fill out our quick and easy-to-use contact form on our Contact Us page.

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