My name is Natalie Shaw and I have over 10 years’ experience in the credit industry, with the last 5 being in a consumer credit environment. In plain English that means recovering debts from individuals like you and me. I have seen the industry transform over the years and this article aims to give you an insight into the history of credit, what you can do to relieve some of your debt issues and arm yourself with vital information so that you feel empowered to take control of your financial situation which will hopefully give you a good night’s sleep.
Credit is something that has been in operation for many hundreds of years and whilst it historically hasn’t taken the form that it does today it certainly had the same principle – you take something now and pay for it later.
Having credit is something that few of us can afford to go without if we want to buy our own home and this goes right up to the government, who has to borrow huge amounts simply to make the country run. In essence credit has great effects, in principle, on the production and economy of the country because rather than wait to save and pay cash people can buy now.
As the types of credit increased it meant that almost anything could be purchased through some sort of finance agreement from houses to cars and computers to sofas. The country and the people in it rely so heavily on credit that no-one really had questioned enough whether it was sustainable in the long term.
Leading up to the recession in the UK it seemed that practically anyone who could supply a signature on a credit agreement was able to obtain credit in many forms like credit cards, loans, hire purchase and the culture of buy now pay later was something that had embedded itself in a large majority of households. Gone were the days of saving to get the things you wanted and the spirit of the post war ‘putting away for a rainy day’ had disappeared.
According to Creditaction the total personal borrowing stood at £1.420 trillion at the end of November 2012 which was nearly as much as was produced by the entire country in 2011. This amount has steadily increased over recent years despite the catastrophic effects of the recession on production and employment.
At this point it is easy to feel annoyed that people were allowed to get to this level of debt but there are two things to consider. The first is that with the ‘debt train’ running at such speed it was unlikely that everyone could foresee what happened in 2008. The second is that whilst you may have over committed yourself financially you were not alone. It was the ‘done’ thing and yes you are responsible but the important thing to remember is that you can do something about it.
The effects on a person who is struggling financially can be far reaching not only on the individual but the family. Financial difficulty may start as missing the odd payment here and there but can quickly spiral out of control and leave a person with more going out of the bank than is coming in. It is not unusual for people in this situation to find themselves unable to sleep, irritable, teary and even spend more to make the bad feelings go away. The list of effects is endless but ultimately your health and wellbeing are most affected and can create tension and instability in your life.
When I look at the debtors I encounter, I see people fall into three categories:
1. Those who get on the phone straight away and deal with the problem as best they can
2. Individuals who sometimes try to deal with it but are so indebted that they simply don’t know where to start
3. Some who simply bury their head in the sand by ignoring the problem hoping it will go away
If you are someone who falls into category 1, I encourage you to continue doing what you are doing if it works for you. If, however, you are in category 2 or 3 I want you to STOP and ask yourself one question: Is the action I am currently taking making the situation any better? The likely answer, if you are honest with yourself, is no.
There are some simple steps that you can take right now to help you take small steps towards financial recovery.
Get a copy of your bank statement for the last 3 months and make a list of all the bills you have to pay each month. Don’t include extras and luxuries, just the things that you are committed to pay. Also make a list of the money that you receive throughout the month including wages, benefits, pension payments etc.
Once you have done this, total up both and calculate whether you have enough cash to cover these expenses and whether that leaves you with sufficient disposable income to account for emergencies and pleasure time. Many people think that to be in debt means that you are unable to have any fun but as human beings we need to have a balanced lifestyle for our wellbeing.
If the outcome of this is that you have enough income to cover your committed payments but are left with very little at the end then you are likely a person that is in financial difficulty.
Whilst this process will not improve your situation, and may even make you feel low about your situation, you are now already empowered. You know what your financial position is and you can do something about it.
What to do next? This is difficult to answer as each of you will have very different circumstances but an overarching guideline is that each person needs to establish, from the budgeting list, what is classed as essential to enable you to live. These things are usually:
• Mortgage/Rent
• Council Tax – This is a legally required payment
• Water
• Energy
• Groceries
• TV Licence
• Travel to work
• Childcare
• Clothing
There may well be other things that you are obliged to pay through contract but you need to reach a position that, once all the essentials are covered, you are left with an amount that you can use to pay other expenses and debts.
Once you have this figure you are again increasing your empowerment and the next step is to speak to the companies you owe money to. Today companies are now under increasing pressure to help customers through their financial difficulties and as such you may find that, unlike days gone by, they are more willing to make arrangements and find alternative ways to satisfy the debt owed to them.
It is important to remember that at first you may have to make several calls to the same companies to reach a position where you have satisfied them and also have something left to enjoy yourself but the effort is worth it and it is very much appreciated by those companies – I can speak from experience on that one!
This process is a good solution for some who have at least some disposable income each month but having done your budget you may find that you owe so much that you have nothing left.
In the past bankruptcy was always a choice available to individuals but this had its problems. When facing this option you were likely to lose everything. The house, the car and any personal assets such as electrical luxuries to help meet the debts you owed.
There are now other options including an Individual Voluntary Arrangement known as an IVA. In this process, a debtor who has enough money left over after priority creditors and essential expenses may be able to use an IVA. This process is managed very formally through an insolvency practitioner and, whilst it can be daunting, it may mean that you are able to finally relieve the pressure of your financial position and eventually return to a more manageable debt situation.
If you feel like you are unable to face your problems alone there are always agencies available that can provide a range of services to help you, including IVA services. I hope that you have found this article interesting and supportive and whilst the road to financial recovery can be tough I wish you all the best for the future.
