Managing money isn’t easy. So getting into debt (and out of debt) is widely written about. But if you do an online search for ‘ways to get out of debt’ you’ll often be sent to websites offering to loan you money. And all debt is bad right? Well, not always – it’s how you handle it that counts.
So we’ve put together the top myths about debt, to help you understand how debt really affects you.
1) You’ll Never Be Able to Get A Loan
Having bad credit has traditionally been one of the main reasons that most people cannot access credit. But not anymore. There are now many lenders who will consider bad credit borrowers for short term loans. Peer to peer loans, guarantor loans or payday loans are all available to those who already have debt.
Many people look for “loans without a credit check” to try to avoid lenders looking at their credit history, but “no credit check loans” are a myth. It is still possible to borrow money even if you have a poor credit score.
2) You’ll Never Get Out of Debt
Getting out of debt is a long slow process, but not impossible. By reining in your spending or increasing your income, you can make more funds available for paying off your debts. And there is always specialist debt help available. An independent and free debt management service can help you formulate a plan to pay everything off.
3) Always Make Minimum Repayments on Credit Cards
Although paying the minimum payment on a credit card is important for your credit record, remember that by paying the minimum amount, you’re extending the cost and length of your debt. Ideally, you should aim to pay off more than the minimum every month to actually pay down the loan.
4) Debt Consolidation is the Only Answer
There are hundreds of debt consolidation companies offering to help you clear your debts and save money at the same time. But a debt consolidation loan can still be a very expensive way to borrow, and often leads to worse debt. Work out how much you already owe in debt, and how much interest you are paying first. Often, it can be cheaper to take out a personal loan to clear debt.
5) You Spend Too Much
It’s very easy to blame those in debt for overspending, but the reality is very different. Statistics show that the rising costs of basics such as food and housing, have pushed many people to the financial brink, and taking out a loan is often the only answer.
6) Credit Scores Show Everything
Your credit record can seem like Big Brother, but it doesn’t show all of your financial details. Your salary, parking fines, CSA payments, declined credit applications, credit file searches and defaults and bankruptcies over six years old do not show up on your record.
7) Your Bank Can’t Take Money Owed to Them From Your Account
Contrary to popular opinion, your bank is entitled to take any money you owe them straight from your bank account without warning. This only applies if the same bank you hold your current account with have also loaned you the money you owe, but remember some banks are in the same group, for example, Natwest and the Royal Bank of Scotland. So an RBS debt could be taken from a Natwest current account.
Understanding Your Options When Faced with Debt
When faced with debts that you are struggling to pay, you’re sure to feel stressed and overwhelmed. What you need to remember is that there are options available to you that can slowly but surely help your finances to recover. Keep reading for a few of these.
Debt Management Plan
If your debt is more serious, a debt management plan may be a better option. This involves talking to all of your lenders and agreeing on a new repayment scheme. This will require you to pay one monthly fee that you can afford, which should lower your stress levels. You may also be able to freeze your debts so that you can pay them off without incurring additional interest.
There are various companies that offer free debt management plans, and others that charge a fee. If you’re looking for a free service, you can contact Step Change or PayPlan – they can offer impartial debt help.
Bankruptcy is traditionally the final solution for those faced with debt as it can have longstanding consequences. However, if you have overwhelming levels of debt that you will never be able to repay, it can be the best choice. Keep in mind, though, that any assets you own may be sold off when you file for bankruptcy, and it’s unlikely that you’ll be able to have any form of credit for at least six years.
Other options, such as IVAs, and Trust Deeds, are also available, so do speak to a debt management adviser if you are struggling.
Short Term Loans
If you have a payment due before the end of the month that you can’t afford, a loan is perhaps the easiest option. With a non guarantor loan, you can basically borrow the amount of money that you need online, and then pay it off on payday. Whilst this isn’t an option for people in piles of debt, if it can help you avoid more trouble, it can be a good plan.Apply Now!