If your partner has debt problems then you need to know about it, because sooner or later it is going to affect you.  Not opening their mail, or other odd behavior relating to things that are mailed can be a sign that someone is experiencing debt problems.  If someone in your home is not opening their mail then it may be because they don’t want to face up to the problems that they have.  Of course it could just be that they are not very organized!

Other mail-related signs include rushing to get the mail so you don’t get a chance to open it or see it or if you stop seeing statements that used to be left for all to see.

Another give-away is your partner receiving a lot of mysterious calls at home.  When asked they might say that it was “just a salesman” or a wrong number.  Very like the behavior that you might expect from someone with a secret lover!

If you suspect that your partner has a debt problem then the only solution is to ask them about it.  They may be reluctant to speak about it but bringing the issue out into the open (or proving that there is no problem) will be the best thing for your relationship.

The irony is that the debt relief solution that is most suitable for people with extreme financial difficulties (bankruptcy) is the one that is not free. Not only that, it requires you to pay an up-front fee.

Informal Debt Relief

There are a wide range of companies and charitable organizations offering informal debt relief solutions. These usually involve either persuading the creditors to accept a longer time period for the repayment of their debt (debt management plans) or persuading them to accept a figure that is lower than the debt owed (debt write-off). None of these solutions are legally binding on the creditors and so rely on the experience of the debt management/counseling company and the particular mix of creditors for their chances of success. With informal debt relief it is always possible to find debt charities that will work with you for no fee or companies that will only charge a fee if they arrange a successful resolution. In this way, if the fee is taken out of the settlement to the creditors then their services can be effectively free to you, the debtor.

Supervised Debt Relief

This includes Individual Voluntary Arrangements (IVAs) in the UK and Chapter 13 bankruptcy in the United States. These debt relief solutions require the services of a qualified person to setup and monitor the agreement (which typically involves paying back a proportion of the debt owed over an agreed period) and the involvement of the court to ratify it. The requirement for legally qualified advice and the involvement of the courts mean that these debt relief solutions are never free. In some circumstances they can be structured (in the UK) so that the fees are taken from the agreed monthly payments, meaning no up-front fees.

Bankruptcy

I’ll say it again, it seems very unfair that a debt relief solution that you would probably only select if you were in a financial crisis requires you to pay an up-front fee. Both in the US and the UK there are court fees to be paid to declare yourself bankrupt (in the US this applies to both Chapter 7 and Chapter 13 bankruptcy). The only hope of being able to declare yourself bankrupt if you cannot raise the court fees is to look for a local charity that will pay your bankruptcy costs. These do exist but you will probably need to do some local research to find them, and be prepared to justify why you need their help.

Talking is Good

For so many problems from drink or drug addiction to debt it has been proven time and time again that it is very helpful to talk over your problems. This will significantly increase your chances of resolving the issue. This beneficial affect will happen almost irrespective of who you decide to speak to (as long as they are a sympathetic listener) because the process of ordering your thoughts and explaining your situation to another person helps your own thought process. This benefit is increased if the person that you speak to has expertise in you particular issues/problems.

What Benefits do Specialist Credit Counselors or Debt Relief Advisers Bring?

You will find a number of benefits from talking to an experienced debt counselor. They will not be surprised by your situation. You may be nervous about speaking to friends/colleagues about your debt problems for fear that they will judge you a foolish person or that your secret will be passed on to other people. A debt worker will have undoubtedly seen your problems before (and probably worse) and will be bound by a confidentiality agreements. You will therefore be able to discuss your debt problems with them in a non-judgmental atmosphere.

The most important attribute that a debt advisor brings is their detailed knowledge of debt law and (almost more importantly) current normal practice in debt resolution procedures. If they take on your case and represent you to your creditors they will do so on a more “level playing field” than you would be able to. They are also often able to speak to specialist departments within the creditor organizations that only deal with debt advisers, never directly with creditors. These departments will often have a much wider authority and remit to agree debt relief solutions than the departments that individual creditors get to speak to.

The reason why creditors are more receptive to reputable debt advisers is trust. They are told all the time by debtors that they are unable to pay, but often suspect that they are being duped. If a reputable debt advisor has taken on your case, looked at your budget, and is telling the creditor that their client cannot pay they are more likely to believe this. They also know that the intimidation tactics that some collection agents will employ against debtors just don’t work on debt advisers.

Conclusion

If you engage the service of a reputable debt advisor then you will be more likely to resolve your debt problem, with less stress along the way. So start looking for one now.

photo credit: Casey Serin

When you first get into a debt problem situation with unsecured debt, you may have picked up the advice that you should notify all your creditors about your problems. I’m sure that this is a good idea, but don’t expect it to change the way that your creditors deal with you. In most cases they will pass your details to their own debt collection department or even an external debt collection agency that will pester you endlessly over the phone and by letter. It doesn’t matter if you told them 2 days ago that you could not pay, they will still phone again just to make sure that you can’t pay now (and to keep the pressure on).

How You Can Turn the Tables on Debt Collection Agencies

Most people don’t realize that you do not have any obligation to speak to your creditors about your debt problem. With the exception of secured debt such as your mortgage, speaking to them doesn’t usually change the outcome. Creditors will follow their own debt collection procedures more or less whatever you do. Once you have notified them you have a problem your time is much better spent considering how you are going to resolve the situation (e.g. Debt Management Plan, IVA, Bankruptcy).

If you dread picking up the phone then there are things that you can do.

1. Use your answering service! Most phone companies provide a free (or very cheap) message-taking service. Get into the habit of not picking up the phone and let whoever is calling leave a message. When you listen back then delete the message as soon as you work out that it is from a debt collection agency.

2. Change your phone line (through your service provider) so that it doesn’t accept callers which withhold their number. Most debt collection calls will originate from large call centers that have the “number withhold” set. Using this tactic will cut out a surprising number of calls.

3. Change you number to an ex-directory one. Make sure if you do this that your own number is set to “withhold” otherwise people will gradually get to know it. Do not put your number on any official forms of any kind.

If opening the morning post is a distressing experience for you then get into the habit of scanning the top part of any letters so that you can work out whether it is from a debt collection agency. If it is, then throw it away without reading it! Most of what it contains will probably be unsubstantiated threats and lies anyway so why depress yourself. Do keep any eye out for any court documents, as these do need urgent attention.

If someone does call at your house to try an collect the debt (and for most debts this is extremely unlikely) then get them to establish exactly who they are. If they are a debt collection agent you are under no obligation to speak to them. If they refuse to leave your property the they are actually trespassing! If they are a bailiff you have to be a bit more careful. For most personal debt they do not have the right to enter your property. In fact, it is vital that you do not let them into your own property (or leave any doors unlocked or windows open that they could get through). They cannot push past you when you are standing at the door but if you let them in or they gain access through an unlocked door or open window then they can start removing your goods. It is worth stating again – NEVER LET A BAILIFF INTO YOUR HOME FOR ANY REASON. They will sometimes try and say that they need to use your phone or some other trick to gain access. Don’t fall for it.

The idea of turning the tables on debt collection agencies is not to enable you to ignore your debt problem. If you ignore it for long enough it will get to the stage where drastic legal measures are taken. You should use the breathing space given by these techniques to consider what the long-term solution to your debt problems is going to be, and get some good free advice.

On a normal unsecured debt you are more likely to see a debt collector, but they have no powers whatsoever. You are perfectly entitled to slam the door on them and demand they leave your property! Any persistent attempts to contact you (standing outside shouting, knocking on the door constantly) could be construed as harassment and would therefore be illegal.

If you are unlucky enough to be visited by a bailiff then you will want to know…

Bailiff Rights of Entry – What Are They?

The first thing you should do when confronted by someone saying they are a bailiff is to get them to prove who they are. They must be able to provide some evidence of their identity and their instruction to collect a debt that you owe. If they don’t have this then they are just a debt collector, and can be sent packing as described above.

If they are a bailiff then unless they are recovering a tax debt and have obtained a court order, they are not allowed to force there way into your home. They cannot push past you when you stand at an open door. They have to gain “peaceful entry” to your home which means entering through an unlocked door or open window (or being invited inside by you). If they visit the house when there are only children present (younger than 18) then they must leave. It is very important to realize that your relationship with the bailiff and their powers to enter your home are massively changed if you let them into your home (or they manage to get in through an open window or unlocked door. If you keep them out then they have no powers. Once they have gained peaceful entry then they can:

Make a list of possessions to be seized (a walking possession order).
Break into locked areas within your house.
Return at a later date and break into your home to gain access to the good listed on the walking possession order.

Letting a bailiff into your house is a disaster and should be avoided at all costs. Don’t fall for any trick regarding using your phone/toilet etc. as it could have terrible consequences.

How do You Resolve the Situation?

You need to get the debt out of the hands of the bailiffs and back with either the courts or the creditor. To do this requires urgent and skilled money advice from the Citizens Advice Bureau or similar debt charity. Remember that the rules regarding unsecured debt mean that you should only have to pay an amount that you can afford (after allowing for essentials) so negotiating to pay your debt by instalments should be a lot less traumatic than being visited by bailiffs.

“Declare bankruptcy and you will lose your home, you might be put in prison and all of your possessions will be sold to pay your debt.”

Two extreme points of view often held on either the benefits or the perils of declaring bankruptcy. As ever in life the truth is somewhere between these two extremes.

So What is Declaring Bankruptcy?

Bankruptcy it a legal status that means that you are unable to pay your unsecured debt. It does not directly effect secured debt. The procedure and implications are exactly the same whether you have been declared bankrupt by a creditor or you have declared yourself bankrupt. When you enter bankruptcy all of your unsecured debts are wiped out (except for certain specific debts like student loans).

What Happens When You Become Bankrupt

You will enter a period when your financial affairs are not under your control. As you have failed to pay back your debts your finances will be managed to try and produce some money to pay your creditors back. You will not be able to obtain new credit until your bankruptcy has been discharged, usually in less than a year. Any major assets that you have will be sold to try and raise money to pay back your creditors. Your bank accounts will be frozen and you will have to open a new basic bank account (one that has no overdraft facility). You will have to attend an interview with the Insolvency service to go over your financial affairs and the reasons for your bankruptcy.

What Happens to my House?

If you own your house then your share of it will need to be sold to help pay off your creditors. If your partner or a family member is able to buy your share of the house at market value then this will remove it from the danger of being sold. If you cannot do this and you share your house with your partner/family then you will have at least a year before the house has to be sold.

Will My Other Possessions be Sold?

Only valuable possessions are at risk of being sold, e.g. cars, boats, antiques etc. The insolvency service are typically not interested in everyday household items. They cannot seize items that are either jointly owned or required for basic living. Even your car might be safe if you can prove that it is required for your work.

Will I Have to Pay Some of My Earnings?

In theory if you earn enough then you can be made to pay an amount each month for 3 years. In most cases this will not be the case. Remember when filling in the forms that your partners income should not be included in the equation, i.e. if you have rent, food, utility bills it is perfectly acceptable for you to say that you pay all of them. This fact alone means that most people do not have any additional income to be paid into their bankruptcy.

How Long Will my Bankruptcy Last?

Rules have been relaxed so that the maximum period for most personal bankruptcies is a year. Many will be discharged in six months or even less. After this time you are free to conduct your life as you please, although you will experience trouble getting credit for a number of years since the bankruptcy will stay on your credit file.

photo credit: SqueakyMarmot

If you are worried about your level of credit card debt then there are a number of solutions open to you. Exactly which solution you choose to reduce your credit card debt will depend on the size of the debt, and your income compared with your total outgoings. There are a number of helpful things that would be common to most situations:

If your credit score is still in good shape then look around for better rates of interest for your credit card debt. Zero percent balance transfers are not as common as they once were but they are still available. Use the reduced/free interest period to reduce your debt as much as possible.

If you are having trouble making enough money to pay your credit cards minimum payments then you have a problem. If you have missed any payments then you probably won’t be able to look around for a better deal, but it might be worth double checking. Try reducing your other regular monthly payments (e.g. insurance, utility bills etc.) by using a money comparison site. If you can reduce your monthly outgoings to the point where you can pay you minimum amount on your credit cards then you will eventually pay them off. If you can manage even a small amount more than the minimum payment it will reduce the length of time to pay off your debts significantly. It is important to point out that you should not be going short of food, clothes or basic things to pay off your debts. If this is the case then you should really (for the health of you and your family) be considering some for of debt solution that will bring your monthly payments down.

If you cannot adjust your budget to the point where you have enough money to pay your credit card bills each month then you will have to consider more drastic measures.

1. You could consolidate your debt into either a secured or unsecured loan. It would probably be best to try and avoid a secured loan if you can, since problems with paying this debt could result in you losing your home. Be very wary about any form of consolidation. You have to be absolutely certain that you will not build up credit card debt in the future. Also, if you have problems with your unsecured debt in the future a consolidation loan will increase the amount that you owe your creditors.

2. You could try an negotiate reduced payments with your creditors. Either yourself or via a debt management company or charity. This may be a good solution if you have a relatively small debt.

3. If your debts are larger you may be suitable for an individual voluntary arrangement (IVA) which will write-off a proportion of your debts leaving you to pay only what you can afford. This needs to be negotiated for you by an specialist company. Beware any that try and charge you large up-front fees.

4. You could investigate declaring yourself bankrupt. This is debt solution that will have the most negative effect on your credit score and future ability to get credit. However it is the quickest way to become debt free and is very suitable for people that don’t own their own home.

Make time to write down all of your regular monthly outgoings. Your bank statement is a good place to get this information. Most people’s monthly budget would include the following items:

Rent/Mortgage
Utility Bills (gas, electric, water)
Tax bills (e.g. council tax in the UK)
Insurance
Telephone
Pension contributions

Mobile phones
Internet
TV Subscriptions

Car loans
Personal loans
Credit card payments

Next add an allowance for food/clothing (if you’re not sure how much this is then keep a diary for a month and total up how much you spend).

If you need to, then make an allowance for luxuries such as eating out/leisure activities/holidays.

Now total up your income, not forgetting to include your partners income (if appropriate) and any benefits that you might receive on a regular basis.

Your path to becoming debt free depends on the relative size of your total outgoings and total income.

If your total income is more than the total of all your outgoings (including allowances for all luxuries etc.) then you don’t really have a debt problem. Simply allocate all of the surpless each month to paying off your debts and in time your debts will be gone.

If your total income is more than all of your total outgoings except the luxury items then you are going to have to make some lifestyle changes to pay off your debt/stop accumulating any more. Cut down on eating out/go to cheaper restaurants. Go on fewer/cheaper holidays. Look at the amount that you spend on things like mobile phones and TV subscriptions. Checkout a money saving site (such as MoneySavingExpert) to see if you can reduce the cost of utility bills/insurance credit card payments etc. Investigate whether you can pay off any car loans by selling the car and driving a cheaper one (be careful if trying to do this since the car is actually the property of the loan company until the loan is paid off). Use the surplus that you generate to pay off your debts. Also if you have any savings then use these to pay off debt as you will almost always save more in interest paid than you could earn by investing.

If your total income is more than all of your regular outgoings but less than the amount that you need for all the regular payments that you need to on your debt (loans, credit cards, car loans) then you have a potential debt problem. Take the steps described above to try and get your monthly budget to balance. If you can then you will just have to carry on paying off your debt until it becomes more manageable. If not then you should stop accumulating any more credit (unless your problem is going to be very short-lived, e.g. 6 months or less) and consider a debt solution. More on the different types of debt solution available in another post.

If your total income is less than your essential outgoings then you have a bigger problem. You will need to work at reducing the size of your outgoings (by all the steps described above) and if this doesn’t reduce them by enough then you will have to consider moving to a smaller house/refinancing your mortgage to reduce monthly rent/mortgage payments. No debt solution will help you to cope with your situation if you cannot meet your regular essential monthly requirements.

The last option that I will mention, that applies to all of the above cases is to try and increase your income by taking on different or additional work or investigating whether you are entitled to any benefits or tax credits. I mention this last because it is often something that people use to postpone doing something about their debt problems. They will say “I’m getting a pay rise soon” or “I’ll take on a part-time job when I’,m a bit less busy” or most dangerous of all “the business that I am starting will save me”. It will take me another post to explain why these options are usually no help.

For all of the above if you feel you need help then there will be an agency that can assist you. In the UK try the Citizens Advice Bureau.

What do I mean by debt advice free?

The important point is that the company that you are dealing with should only charge money for their service once the solution that they are proposing has been agreed by the creditors (people that you owe money to). I have no problem with companies/individuals making money if they actually resolve your debt problems but they should not charge you a penny for any work they do up until that point. Most forms of debt solution will have some companies/organisations that either will arrange it completely free (in the case of charities) or will only charge you once the solution is approved. The really good companies will then take the charges over the lifetime of the agreement so that they are more or less invisible to you.

So should you always use a charity/non-charging organisation to resolve your debt problems?

This is where the situation gets slightly more complicated. Your primary objective should be to get a debt solution agreed with your creditors. This may depend more on the reputation that the company organising your debt solution has with your creditors than it does to do with the amount of money that the creditor receives.

Frequently the charge for the debt solution comes out of the money that the creditors receive, that is if you had not been paying it for the debt solution it would have gone to the creditors so whether it is free or not at this point makes no difference to you.

Whether in fact it makes any difference to you depends on the type of debt solution being proposed. This part of the post relates specifically to England and Wales in the United Kingdom but there are probably some general points for readers from other countries:

Debt Management Plans – In this case you would be better off (if you can) getting your DMP from a free provider. This is because in a DMP you actually pay off everything you owe to your creditors. You probably won’t be any worse off each month if your DMP provider charges a fee, but the plan will go on for longer as the debt management company will be extracting their fee from the monthly payment that you make.

Individual Voluntary Agreements (IVAs) and Full and Final Offers – for these debt solutions it really doesn’t matter that much whether your debt solution comes with a fee or not since it will come out of the amount that is to be paid to the creditors (or should do). Therefore the important thing is to select a company with a good record of getting debt solutions agreed (if possible with the creditors that you owe money to)

Well I suppose I don’t know exactly how you feel, so let me explain what my state of mind was like 4 years ago…

I had mounting debts that I couldn’t see how on earth I was ever going to be rid of.

I was missing payments.

I dreaded the phone ringing or opening the mail in case it was yet another abusive call or letter.

I was terrified that someone would call at my home to try and get me to pay up. I was especially worried in case this happened when we had friends or family over.

Having a young family I was very concerned about losing our home.

Basically I was at rock bottom and very nearly suicidal. How could someone of reasonable intelligence have got himself into such a position and how was I ever going to get out of it? Well thanks to the decisions that I made then I am now debt free (and have been for 2 years). The decisions I made then quickly reduced my stress over my debt problems and ended the tide of nasty phone calls and letters.

So who would you rather receive your debt assistance from? Someone who has been through hell and back financially or someone who is only interested in making money out of your situation? OK, so I do run ads on this site (part of not getting into debt again is earning more money!) but I am genuinely interested in helping people that are in the situation that I was. Post comments or questions here and I will do my best to answer them.

If you want your debt advice free then stick around, bookmark this site, or subscribe and I’ll hope to answer your questions.