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Protect yourself from spiralling debt; act now!

13th January 2011

During the course of 2010 more than 3% of UK adults sought debt advice from debt charities, debt management companies and trust deed operators. Some experts are predicting around 1.7 million families may seek external debt advice in 2011. As recently reported, the number of Scottish trust deeds is predicted to increase significantly this year as personal finances continue to tighten in response to the current economic squeeze.

Despite these high figures it is common knowledge that a huge number of individuals who are struggling to manage their debts do not seek advice. This is a very human response; most of us want to pay back our debts and will do everything that we can for as long as we can to try to do so. Debt experts warn however that such an approach can be extremely dangerous. Often debts can increase significantly during this period, which can lead to a reduction in the number of debt solution options open to the debtor when they finally do seek advice.

In this article we will look into the eight major warning signs that anyone worried about their debts should look out for. If one or more of the following eight factors apply to you, it is strongly suggested you seek out a trusted source of debt advice before the problem escalates.

1. You’re using a credit card to pay your mortgage or rent

A recent announcement from the housing charity Shelter, suggested around two million people have used their credit cards to pay their mortgage or rent in the past year. This amounts to about 6% of UK adults, and represents an increase of 2% over the course of the past year. Using a credit card to pay your rent or mortgage is a fundamental warning sign your finances are dangerously out of control. The payment of housing costs is considered to be a fundamental requirement to be prioritised over and above other types of debt payment. Help should be found quickly to deal with the underlying problem before a debt spiral sets in.

2. You’re using credit cards to pay for utility bills or food shopping

It should also be taken as a fundamental warning sign if you regularly rely on credit cards to pay for your gas, electricity, food shopping or petrol. Like housing costs, utility bills and food costs are fundamental needs which should be taken into account before considering repayments for unsecured debts such as bank loans or credit cards. An individual in debt may make their repayments just after the date they receive their monthly wage. For some people this leaves them with insufficient cash to pay for essentials such as food and heating, hence further credit is used. This is the start of a debt spiral where debts grow at an ever increasing rate over time, often with disastrous consequences further down the line.

3. Your bank current account is getting out of control

When trying to manage their overall financial situation many people find they are exceeding their overdraft limit. Others find themselves forced to make regular requests to extend their overdraft limit. Both of these factors indicate a “hard core” level of debt has been established, which is at best being managed but seemingly impossible to clear.

4. You cannot transfer your debts to a cheaper source of credit

A logical step for anyone with tight finances is an attempt to move their finances to cheaper sources of credit in order to balance their books. Transferring credit has become more difficult in recent times as lenders look to protect themselves from non-payment. In general the public has become aware of this fact, and the amount of debt transferred in this way has halved over the past two years. If you have tried and failed to transfer to cheaper types of credit then this is a definite sign that the lenders are concerned with your ability to repay the debts. This may be to do with credit rating problems; however it is just as likely that they are concerned with your ability to manage your overall debt levels.

5. You’re still paying for last Christmas, let alone this year’s

In a recent survey, 40% of respondents admitted they were still servicing debts incurred in the run-up to Christmas 2009. Once again this suggests a build-up of a “hard core” of debt. It is important to deal with such a situation as early as possible, and if done correctly, you may be able to escape serious debt solutions in the future.

6.You’ve drawn up a budget, but it doesn’t add up

Drawing up an old-fashioned budget is an extremely important step for any individual worried about money. Things like car tax, car servicing, haircuts, clothing and pets are all easily forgotten, but for most people these add up to a significant sum over the course of a year. If you find your expenses are outweighing your income, then it is important to explore all possible avenues which may lead to an increase in money coming in. It is also essential to look constructively at your expenses to see if they can be reduced. Once you’ve worked it through you will know whether it’s viable for you to carry on as you are. If there is no way to control expenditure in relation to your income, then the time has come to take advice.

7. You have taken out a payday loan or doorstep loan to make ends meet

Payday and doorstep lenders have filled the gap left by high street banks who no longer wish to lend as they used to. However, the interest costs for these types of loans can be astronomic, with even supposedly reputable brands promoting loans with an APR in excess of 2000%. If you are already struggling with debt and have resorted to this type of lending you have entered a critical stage where debts are likely to rise sharply. Virtually unseen a few years ago, trust deed companies now frequently see this type of lending in amongst the creditors of their clients.

8. You worry about money every day

The psychological impact of debt and money-worry should not be underestimated. The problems caused by debt can have a massive affect on people’s family lives, their relationships, their health and their workplace performance. In a few extreme cases the pressures caused by debt can lead to suicide. One leading financial website recently revealed that 33% of us worry about our current or future financial affairs every single day. If you are worrying about money constantly and one or more of the above factors apply to you, it could well be time to seek out help

If you’re thinking about taking debt advice, you probably should:

If one or more of the factors above apply to you, and you are reading this article, the chances are you’re seriously considering taking advice. It’s a big step to take as often people understandably feel uneasy about discussing their financial situation.

Good debt advisers understand this and will be sympathetic, understanding and supportive. Their role is to help you find the best way to deal with your debts, and for this to happen it is essential they have a thorough understanding of the figures involved, as well as your personal concerns and priorities.

A debt adviser will work with you to establish a picture of your current financial situation. This will include discussing your income, expenditure, assets and debts. You may not have exact details about all of these to hand, but even working through this information on an estimated basis will allow the adviser to provide information on the best options available to you. These may include a trust deed, debt management plan, debt arrangement scheme and in severe cases, even bankruptcy.

You will not have to act immediately once this information has been provided to you. In fact it’s important you take the time to understand exactly the benefits and drawbacks of each. No decision should be made until you are absolutely sure that the suggested solution is right for you. Any debt adviser who puts pressure on you to make a decision before you are completely ready should be replaced with a new source of help.

Our trust deed forum provides a comprehensive source of accurate information to help you in the early stages of debt. Ultimately, personal direct help from a professional will be required; however, the forum acts as an excellent starting-point for anyone looking for advice and to learn from the experiences of others who found themselves in similar situations.

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