Types of debt
The average household in Scotland owes around £13,000 in debt. It’s important to remember, though, that debt isn’t always bad. It is unavoidable. However, the way we control our finances has been changed rapidly and irreversibly by the free availability of loans and credit. This availability has offered us the opportunity to improve our lives and has offered new financial freedoms, but if not handled correctly, or in the case of unforeseen circumstances, it can bring us down rather than push us up. Through various formal procedures, we can fix your economic situation and get control back from your creditors.
There are many different kinds of debt when we are talking specifics, but all of them can be categorised into two groups:
This category of debt includes those which are taken out against an asset. For example, you use your house in order to secure a mortgage. In the event that you cannot make the predetermined payments, the bank can seize your home and sell it to recoup the money they are owed. This is called liquidation of the asset. Secured debt is useful for people looking to borrow with a bad credit rating as it involves less risk for the lender, making them more likely to offer money – often with relatively low interest.
On the other hand, unsecured debt is not secured against anything. There is no predetermined course of action that a lender can take in the event you cannot make the repayments. They may sue you, or attempt to gain control of your assets to liquidate them (sell them). Because there is more inherent risk for the lender as it is much more of a headache for them to recover the money they are owed there are high interest rates attached. They are also less likely to lend in the first place. The nature of these loans means they are much more likely to become unmanageable, which can cause severe problems for the borrower.
It isn’t unusual for debts to become out of control. It affects tens of thousands of people across the UK. There are countless reasons for why it might have happened, many of which are entirely out of control. It isn’t easy to ask for help, but it’s not as difficult as continuing to let debt control your life. Give Debt Free Life a call today.
Types of Unsecured Debt:
Credit Card Debt –
When it comes to unsecured borrowing, credit cards (more accurately called ‘debt cards’) are perhaps the most common debt trap that people fall into. Research carried out by Compare the Market determined that one in 10 of the people they interviewed in the UK had maxed out their credit cards. Credit cards are an easy safety net to rely on, but the massive interest rates that are attached can make them a fast track to losing control of your finances.
Credit card fees and charges can apply for many reasons. Unexpected circumstances might have made you unable to meet your minimum repayment, or perhaps you have accidentally gone over your credit card limit. You may even have known a purchase or payment would incur charges, but an emergency situation demanded it. Whatever the reason, credit card fees can cause whatever bill you predicted to be much higher than you expected and too much for you to pay.
One of the worst features of credit card borrowing is that the balance may continue to rise even if you are meeting minimum repayments. For example, if your balance is sitting at £2500 and you have a minimum repayment of £125 but an interest rate of 17%, despite avoiding additional fees your balance would still rise to £2778.75. Meeting minimum repayments is far from a bad thing, but it can trick you into thinking you are making progress on your debt problem while it only continues to rise.
One of the easiest ways to have your credit rating compromised is by losing control of credit card repayments, which can harm your ability to get credit in order to manage your finances. Getting back in control of credit card debt may seem like an uphill battle, but with just a phone call to Debt Free Life, our team of talented and dedicated advisers will create a plan that will have you well on your way to freedom from creditors.
Store Cards –
Store card-related debt problems can be one can be one of the easiest to fall into yet also holds an incredibly high interest rate. Shops lure you in with promises of instant discounts and the ability to pay later, but if left unpaid the money problems that follow can lead to financial ruin.
Our society places immense pressure on consumers, made even worse for those supporting families with children going through school, and the discounts offered by signing up to store cards can be a difficult thing to ignore. However, interest rates as high as 25% or even 30% mean that if the balance owed after the transaction is not settled immediately, then it can increase rapidly and uncontrollably.
Shops are also mostly unconcerned with your credit rating, meaning they take advantage of people they know are in a desperate situation by approving any and all applications. Even if your credit rating is solid, it might not be by the time you’re finished settling the debt on your store card. We spoke to one client who had a remaining balance of under £20, and it remained outstanding for only a day. Nonetheless, it was an issue when she applied for a mortgage years later.
The massive amount of debt owed in the form of store credit is of no surprise to anyone, the pressure on consumers is largely to blame, but it is absolutely paramount that the problem is addressed straight away as not doing so can leave you financially crippled for years and even decades. Pick up the phone straight away or fill in our debt calculator; our team are always just a call away and more than willing to help.
Council Tax Arrears –
Council tax is a problem across the UK, but is particularly prevalent in Scotland. Since the government has more tools at its disposal to reclaim money it is owed, these kinds of debts should be considered a top priority. They are much less limited than private companies in the actions they can take.
The process for following up missed council tax payments is massively unforgiving. After just one missed payment, the council will send a warning letter asking you to pay the amount owed within a week. Your credit rating will already be harmed at this stage. If this warning letter is not adhered to, then you will likely lose your right to pay in monthly instalments and be forced to pay the full amount owed.
From here, the relevant authority has the ability to take money directly from your income, whether that be wages or benefits. This can make keeping on top of your finances even more troublesome and mean you have to miss other essential payments. Sheriff officers may also be instructed to arrive at your home and attempt to claim assets for liquidation. Remember, you don’t have to let them in the first time they arrive. In some cases, it is possible that missed council tax payments will carry a prison sentence.
Being in arrears with council tax is a severe problem, but you aren’t beyond help – although it must be addressed quickly. We have lots of experience in negotiating deals with government bodies for clients, so your best course of action is to pick up the phone and get in touch with us now.
Rent Arrears –
Falling behind on rent is a problem that we find troubles our clients significantly more than others. The reason is completely understandable – if rent arrears are not addressed you may be evicted from your home.
After a few missed payments, sometimes as little as two, the landlord may begin the eviction procedure. The court action which follows can be incredibly long, which can put an intolerable strain on you, your partner and your family. Being taken to court doesn’t mean instant eviction, you will likely have the opportunity to pay back what you owe. However, if you are in a position where you cannot pay your rent before going into court, it is unlikely you’ll have the money to pay after it is finished and future payments may still be an issue.
There can be no time wasted when it comes to protecting your home; dealing with rent arrears is of the utmost importance. Our team of advisers has dealt with problems like this for thousands of people across the country and is more than equipped to ensure your family can stay in your home. Get in touch with us now and let us sort it out.
Overdrafts don’t seem like a very big deal, it can often feel like free money, but with the expensive interest rates that come alongside them they can very easily become unmanageable debt.
Everyone finds unexpected expenses throughout the year that you haven’t budgeted for, and arranged overdrafts can be a convenient safety net for dealing with them. Being able to withdraw an extra hundred pounds here and there can be essential for unforeseen car trouble or home repairs. Banks, however, often charge expensive interest on bank overdrafts which can escalate quickly, transforming little dips into extra available funds into serious and long-lasting problems.
Unarranged overdrafts are even worse; not only do they have similarly high interest rates, but additional bank fees apply. With some banks, if you make a purchase at £50, and only have £30 in your bank, they might lend you £20 automatically. While this seems like a great service, they may charge you an additional £20 in bank fees for the privilege! This, in combination with interest rates, can very easily let things spiral out of control.
Overdrafts being so easy to access make them such a common debt problem for people throughout the UK. All is far from lost, however, and with the right help and sound advice your struggle with overdraft could eventually be over entirely. If your finances are starting to get on top of you, it’s time to reach out to us and begin the journey towards your debt free life.
Payday Loans –
Payday loan companies are now more limited than they used to be, but nonetheless their high-interest rates in combination with their relatively short repayment period, has been the cause of financial ruin for thousands of people around the UK. Not only does it ruin your credit rating, but you can be forced to pay back a huge amount over what you originally borrowed.
Unforeseen problems sometimes mean that your income just won’t stretch far enough in a month, and a payday loan can sometimes seem like a good solution. They aren’t. Payday loans often come with significant fees, meaning that even though you’re paying them off over a shorter period of time it doesn’t do much to offset the interest charges. If you borrow, saw, 600 it may have a 25% fee. This means you’ll be paying back £750, an extra £150, before interest is even involved at all.
Interest rates can still be a problem however. You might have missed a repayment, or perhaps have taken the loan out over a longer period of time. Since the government has now capped how much interest can be charged, it won’t rise forever, but it can still rise very quickly to double what you originally borrowed. The chances are if your finances are such that you need to borrow from a payday loan company, then this is still a challenging amount of money for you to pay back, regardless of new governmental law.
Payday loan companies tend to ask for quite intrusive rights too. They might even demand direct access to your bank account, which they can use to reclaim money without your consent. This can lead to problems paying other bills, as you will have less money than you anticipated.
Borrowing from a payday lender can also harm your credit rating, even if you get everything paid back on time. They can make you seem unreliable to lenders, who may opt not to lend to you as a result.
Most people do not need to be told that payday loans should be avoided, but we know that this can be easier said than done when it comes to real life. Struggling with payday loan repayments are a serious thing, but there is always a solution. The first step towards it, is to pick up the phone and get in touch with us today.
Income Tax Debt –
Government authorities have a much wider variety of tools at their disposal for reclaiming money they are owed compared to private companies, so having a debt to them can be a very serious issue. While for most people tax is just automatically taken from your wage from payslip to payslip, if you’re self-employed trouble with HMRC can arise in many different ways.
Business can be unpredictable, and a change in circumstance might mean you are left unable to pay your proper income tax. Perhaps an essential expense has caused you to dip into savings put aside for tax, or maybe a reduction in profit means you don’t have the funds you expected. It might even be something as benign as a mistake in your tax return, but whatever the reason owing money to the tax man can be a very serious issue.
In many cases, money owed to the government can lead to repossession of your property or assets. In extreme cases, it can come with a prison sentence. Whatever the situation, it isn’t hopeless, but you need to take action sooner rather than later. Get in contact with us now, and lew us find a solution that works.