The Guide Top Ten: Getting out of a downward spiral

Published on Friday 19 September 2008 21:52

EACH week The Scotsman gives you a top ten guide to pertinent financial issues.

As the credit crunch has unfolded a growing number of people have found themselves with severe debt problems. Ian Wright, managing director of personal debt advice firm newtomorrow.com, offers ten tips on how to decide when a formal solution – sequestration or a protected trust deed – might be your best option.

1 KNOW WHEN TO SEEK HELP

Recognising you are having difficulties meeting all your financial commitments and accepting that something needs to be done about it is the first step to recovery. Don't bury your head in the sand.

2 ASSESS THE SITUATION

Add up your income and outgoings to find out exactly what state your finances are in. This will enable you to consider the best way of tackling your debt, whether it's through an informal solution or a more formal measure.

3 ADMIT DIFFICULTIES TO CREDITORS

It may be that you can sort out short-term cashflow problems if you were offered more time to repay debts. Most lenders are sympathetic to those who are struggling with bills. If you let your creditors know, it may be possible to reduce your repayments or take a payment holiday and resolve the situation yourself. This is the essence of a debt management plan.

4 AVOID FURTHER BORROWING

If you are struggling to pay bills it is a bad idea to think you can tackle it through more borrowing, as there's a good chance that the problem was caused by borrowing in the first place.

5 CONSULT AN EXPERT

If your own efforts fail to help your debt situation you need to speak to someone else to help you come to a decision about the best course of action. It is important to consult a professional debt adviser who can outline the pros and cons of each option open to you.

6 DON'T FEEL RUSHED

While you will want to sort out your problems quickly, don't rush into a decision. Take a few days to consider which course of action you want to take.

7 CONSIDER YOUR HEALTH

Most people want to honour their debts and while it is important to do your best to achieve this, it is also important to recognise when you can't. The health and wellbeing of you and your family is more important than scraping by simply to endlessly service huge debts with very little money for the sake of pride. This is when formal solutions will be the best option.

8 CHOOSE THE OPTION MOST SUITED TO YOU

When deciding which action to take, it is important to think about how it might affect you. Protected trust deeds avoid most of the harsher aspects of sequestration, while sequestration can sometimes be the better option if you have a low income and low assets and creditors will not accept a trust deed solution.

9 STICK TO YOUR AGREED PLAN

Once you've decided on a course of action you will need to stick to it to ensure the desired outcome. That means sticking to the agreed payments and avoiding the temptation to spend too much money elsewhere.

10 LEARN FROM THE LESSONS

Financial problems aren't always necessarily your fault, but more often than not they are years in the making through unwise borrowing and mismanagement of money. Once your debt has been cleared, use your experiences to remind you of the importance of closely managing and monitoring your financial situation to avoid a repeat of events.