Speaking from personal experience, he said that when he first started working in the bankruptcy field, some 25 years ago, there was a real stigma attached to bankruptcy and insolvency and such a route was only ever considered as a final option. Mr Sands believes that the pendulum has swung too far in the opposite direction, with many people using bankruptcy as an escape route after maxing out their credit cards.

Does that mean that with Christmas looming ever closer we will throw caution to the wind and spend far too much or will the looming ‘age of austerity’ encourage us to be just a little more sensible?

If you are troubled by debt, whether that’s because you’ve overdone the credit cards, you’ve lost your job, or suffered some other downturn in your circumstances, maybe the information here will help you to find your way out of debt. You’ll find information here about:

• Remortgaging with a poor credit history
  
• Protecting your home from repossession
  
• Freeing yourself from credit card debt
  

Other areas of the site will give information on selling your house fast or even how to maximise the current economic climate by buying a repossessed property.

Let’s just take a quick look at those issues raised by personal debt – you might be surprised at how far reaching these can be; unless, of course, you find yourself in this very situation.

Stress

Well, this one won’t surprise you at all – being in debt weighs heavy on the mind. You daren’t go sick from work, despite how ill you might feel. The problems follow you to bed so you don’t sleep, which makes you feel even rougher. Stress is recognised as an illness of our fast and furious 21^st century, being in debt just makes that stress worse.

Money Taken at Source

Even though being in debt is now a common problem, most people still see talking about it as a taboo. If you owe a large amount of money the person you owe it too might order a court order to get debt instalments paid from your wages before you get them yourself. This is known as wage garnishment. Point number one – if you’re struggling for money you can ill afford to lose any of your wages and, point number two, having your employer know about your financial situation can feel hugely humiliating. And, although your employer can’t legally fire you for having one garnishment, he can fire you if you have multiple garnishments

Divorce

Debt is one of the major driving forces behind the divorce statistics. Almost half of all UK marriages end in divorce, with 132,361 divorce petitions in England & Wales in 2009

Inability to Purchase a Home

A poor credit rating will negatively affect your ability to get a mortgage.

Eviction

When debts mount up it can be tempting to shift the money around, paying off some expenses at the cost of others. An eviction on your credit report will do little to help you get yourself back on your feet again.

Emotional Breakdown

Some people cannot handle the relentless pressure put on them by demanding creditors.

Murder

Did you know that debt and the accompanying emotional stress is one of the major causes of murder in the UK? accompanying

This does not make for comfortable reading does it?  However, you’ll feel a whole lot better if you take control of the situation.  As the very minimum we would suggest the following:

1. Acknowledge the problem
2. Do not be intimidated
3. Pay debts that secure the roof over your head first
4. Get free impartial debt advice
5. Treat commercial debt relief companies with caution
6. Do not rule out bankruptcy
7. If you are thinking of taking on something like an IVA make sure you understand all the costs and charges up front
8. Stop all unnecessary spending now
9. Check out the Consumer Credit Counselling Service
10. Find a form of therapy other than shopping

The Consumer Credit Counselling Service (CCS) has produced figures showing an increase in the number of men seeking debt solutions. The sharp increase over the past three years is put down to a combination of things, such as: pay freezes; rising unemployment and increased household expenditure. The last, of course, has been evidenced by the rising inflation rate as seen in the graph below:

CCS chairman, Malcolm Hurlston believes that men are emerging as the new underclass, with debt being just one of many problems they experience.

As we highlighted last week, the total UK personal debt figure now exceeds our total gross domestic product.

If you are troubled with debt, take action NOW! You could perhaps consider an Individual Voluntary Arrangement (IVA) or a Debt Relief Order (DRO). Whatever action you take, the CCCS or Citizens Advice will be able to give you good, impartial advice.

Probably the first thing you need to know if you are in debt is that you are one amongst many. Okay, so the only debt you are worried about is your own but, just sometimes, it helps to know you are not alone.

The next thing you should know is that getting help is probably easier than you imagine. There are a number of agencies out there who will give you good and reliable debt advice. They will also help you to manage your finances in an attempt to prevent a recurrence of your current financial difficulties.

The type of debt you have amassed is, largely, irrelevant; whether in the form of bank loans, overdrafts, store cards, or credit cards, there are solutions out there.

Debt Management Programmes

When you are in serious debt there is an overwhelming feeling of powerlessness; you owe money that you don’t have but, no matter how long you ‘sleep on it’ when you wake up the debts are still there and the money isn’t.

Debt management programmes are a method of bringing you back in control of your finances, whilst at the same time reducing the amount of money you have to pay out every month. Debt management is particularly useful if you are in receipt of a regular income and the amount you owe is not too large. You will work with a personal adviser who, after analysing your income against your total outgoings, will negotiate with your creditors to bring you repayments down. You will pay your debt manager an agreed monthly sum, out of which he will pay your creditors at the lower agreed rates. One of the most attractive aspects of this system is that your creditors negotiate direct with the debt manager, rather than with you. This means that the payment-demanding phone calls and letters will gradually disappear.

IVA

An IVA, or Individual Voluntary Arrangement, is a debt solution that is used where the most probable alternative is bankruptcy. In an IVA, your creditors will agree to write off part of your debts, allowing you to make monthly payments that you can afford over a period of five years. This debt solution is most effective if you have large debts, over, say, £15,000 and no way of paying them at the current levels.

Finding Debt Solutions

There are a number of organisations set up that provide free debt advice. We also provide more information about debt consolidation.

Financing your Debt

It is important to remember that organisations that provide debt solutions are businesses, that is, they earn their money by helping you. Having said that, they are also aware that the reason you are seeking their help is that you can’t afford to pay your current debts, let alone new charges. For this reason, a number of payment solutions are on offer so there will be one that is right for you.

The main message here is that there are many thousands of people in the same situation as you and, that being the case, there are ways on offer to help you get off this treadmill.

Now here’s something we’ve never discussed before on this site – equity release; if you’re a homeowner of 50-55 years and older, equity release schemes are one of many debt solutions you might wish to consider.

What is Equity Release?

To explain how equity release schemes can help, we first need to look at exactly what equity means in the context of the housing market. In very simple terms, The equity in your home is the difference between what your property is worth and any outstanding debt secured against your house. So releasing this money is simply getting hold of money that is yours anyway, which means that there is no tax payable on any funds you receive. There are numerous equity release plans on the market and it really is a case of buyer beware before signing anything.

However, the main points about equity release are:

• You have to be over a certain age (typically over 50) and own your own home
  
• You can get a cash lump sum, a regular income, or both, to use as you wish
  
• You can continue to live in your home
  
• You continue to be responsible for maintaining your home.
  

In essence, there are two main types of equity release scheme – lifetime mortgages and home reversions. In this post we’ll look at the different types of lifetime mortgages and, in the next post, we’ll concentrate on home reversions.

Equity Release: Lifetime Mortgage

1. You take out a loan that is secured on your home (that is, the lender knows they can get their money back by selling your home)
   
2. You continue to own your home, although you will have to pay back the mortgage on it;
   
3. You repay the mortgage from the proceeds of the sale of your home when you die, or if you move out
   

Roll-Up Mortgage

With this type of Lifetime Mortgage, you borrow the cash as either a lump some or as regular income. Fixed or variable interest is added to the loan monthly or yearly. But you do not pay the interest until your home is sold. This could be when you die or need to go into a care home.

The main point to bear in mind here is that interest is compound that is it is charged on the loan and also on all the interest that has already been added. This means that the amount owed grows quickly – particularly if you have taken the money as a lump-sum. As an example, if you took a lump sum of £45,000 at, say, 5% interest a year, this is how the amount owed would grow over 25 year period:

Obviously, the higher the interest rate, the higher the amount you will eventually pay back.

Draw Down Mortgage

This is another type of Lifetime Mortgage. With the Draw Down Mortgage, rather than taking out a single lump sum, you take smaller amounts over a period of time; these amounts can be taken at regular intervals or as and when you need them. Interest is not paid until the loan has been repaid.

Interest Only Mortgage

You borrow a cash lump sum and pay back the interest on the loan each month at either a fixed or variable rate. If you are on a fixed pension you could find a variable rate mortgage difficult to repay if interest rates rise. You don’t pay back the original amount of the loan until you sell your house.

Fixed Repayment Mortgage

Once again, you borrow a cash lump sum but, rather than being charged interest over the lifetime of the loan, you promise to pay the lender more than you originally borrowed when you eventually sell your home. The amount you will repay is fixed when you take the loan out.

The downside of this scheme is that the lender may charge interest on this higher sum from the date you die until the mortgage is actually repaid, thus putting pressure on your loved ones to sell the home.

Home Income Plan

Another scheme where you take out a lump sum, which is used to buy an annuity that gives you a regular income, usually fixed for life. You pay the interest on the loan, usually at a fixed rate, from the income provided by the annuity. The amount you originally borrowed is repaid when your home is sold. This is really a scheme for older people as, if you take the annuity soon after retirement, the income from it will be fairly low. The older you are when you buy an annuity, the higher the income you’ll get, as there are fewer years over which the income will need to be paid.

Shared Appreciation Mortgage (SAM)

With a SAM you agree with the lender that they can have a share in any increase in the value of your home when it is sold in return for them charging you less or no interest on the loan.

Find an Equity Release Adviser

Equity Release Calculator

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You could be forgiven for thinking that, if you already have a bad credit rating, the credit crunch has more or less eliminated any chances you may have had for remortgaging. Don’t despair, however, mortgages and re-mortgages are still available for people who have had credit problems in the past as well as those who have no proof of income, such as the self-employed.

It’s true that, if you have a poor credit record, including CCJs and bankruptcy, most High Street lenders probably won’t look at you twice but there are still specialist lenders out there who will approach your situation more sympathetically.

It has to be said up-front that you won’t be offered the best interest rates around as interest rates reflect how risky the lender thinks you might be – if you’re credit history is not wonderful or if you are looking for a high value loan compared to the value of the property, you will pay higher interest. Of particular importance is your very recent credit history, so you should have had no CCJs or additional mortgage arrears in the past three months.

When it comes to how much you can expect to borrow: up to about 90% mortgages are available for a fairly clean record; if there have been problems in the not-recent past, you could probably get 80% to 85%; and even those with very poor credit history can obtain a mortgage up to a maximum of 65% of the property valuation.

None of this is set in stone though and every case is different, which is why we always advise people in this situation to contact a registered mortgage broker. By approaching a specialist broker you:

• Could get a loan that you wouldn’t have been able to find by yourself
  
• Would only have to make one application only. This is important as multiple direct refused applications would further damage your credit rating
  
• Might be able to stay in your family home instead of being repossessed or evicted.
  

The following links may help you find the remortgage solution for you:

Credit Choices

Email Mortgages – this company offers free mortgage advice

Finance & Mortgage UK – specialise in what they call adverse mortgages

Cozy Loans – specialise in finding mortgages for those with a bad credit history

Moneysupermaket.com – offer a selection of lenders willing to loan to those with a poor credit profile

If you have used one these companies – or, in fact, any other loan or mortgage brokers – successfully or otherwise, why not help others in a similar situation by writing about it on our bank forum?

In effect what you are doing is paying off the balance on one credit card with another card, which makes sense when you move the outstanding balance from a high interest rate card to a card with a lower rate.

Transferring the balance between cards like this is one form of debt consolidation.

Don’t let the zero interest rate lull you into a false sense of security though; you should still aim to pay off as much of your debt as possible.  And don’t forget that the more of the debt you repay during the interest free period the more quickly you will clear the debt – and more cheaply too.

In fact, once you have your card, it’s a good idea to set up a direct debit to pay a regular sum off the balance each month.  Late payments can jeopardise your 0% deal, so make sure you transfer the money in plenty of time each month

Remember too that usually it is only the transferred balance that is interest free – any new purchases will attract interest at the current rate.

Make sure you read the small print – some credit card companies also charge a balance transfer fee to take over your outstanding debt, make sure you know the amount payable if this is the case.

Here are some useful links for zero interest transfers:

• Uswitch.com: compare 0% balance transfers
• Virginmoney.com: currently offering 16 months 0% interest on balance transfers.  The rate applies to transfers made in the first 60 days and a handling fee of 2.98% applies.
• moneysavingexpert.com: more info about the Virgin 16 month offer
• ukcreditcards.com: a credit card comparison site that compares a wide range of 0% transfer options
• stoozing.com: very useful balance transfer savings calculator

Put very simply, debt consolidation involves taking out a loan with which to pay off all your other debts.  So, in effect, you replace mutliple regular payments with just one.  Seems easy, yes?  Perhaps debt consolidation is the best solution for your current situation but it is vital that you take many things into account before going ahead.  According to leading UK charity, Consumer Credit Counselling Service, taking out consolidation loans to pay off debts can have disastrous consequences for the over-indebted.  When you think about it, borrowing to get out of debt can’t be a good idea because you’ll just end up owing more. 

Reasons for Considering Debt Consolidation

Everybody’s circumstances are, of course, very different.  Here are some reasons why you might want to consider debt consolidation:

• You are finding it difficult to keep up to date with existing debt repayments
• You are having problems affording day-to-day expenses
• Your existing debts have high interest rates and you would like to lock your debts into one, lower rate.
• You want to reduce your regular payments to a new lower amount

Advantages and Disadvantages of Debt Consolidation

Advantages

• Debt consolidation can reduce your monthly debt repayments High interest rates are replaced with a lower rate.
• Debt consolidation will allow you to combine multiple debts into a single one
• Your creditors will go away – satisfied to have been paid
• You will have just one creditor to keep  happy

Disadvantages

• Debt consolidation payments can go on for many years
• Interest rates can be very high – you must check out the total amount you will repay over the period of the loan
• If the loan is a secured one, your house (or whatever you have used as security) will be at risk if you do not keep up the repayments
• You will be in debt for longer than if you paid off your debts individually .
• The contracts for debt consolidation loans are very prescriptive and  you will incur a financial penalty if you lengthen or shorten the period of the loan
• A secured loan will be linked to the Bank fo England interest rate – so your repayments will increase as interest rates increas.  The reverse is, of course, also true.

Debt Consolidation Regulation

Secured Loans

Companies offering secured loans that are based on releasing the equity on your home via a remortgage must be registered with the Financial Services Authority, which makes it compulsory for them to provide you with certain information.

Loans that are not mortgages are not regulated in the same way.  The loan company you use must have a Consumer Credit Licence issued by the Office of Fair Trading. This imposes certain conditions on them which require them not to mislead you.

Unsecured Loans

It is rare to be offered an unsecured loan for amounts above £25,000.  Once again, the Office of Fair Trading are responsible for regulating companies offering unsecured loans.

Choosing a Consolidation Loan

Apart from shopping around for the best terms you can find, you should take the following points into consideration:

In this week’s Independent on Sunday,   Julian Knight likens the apparently improving financial climate to Black Adder Goes Forth: Final Episode. For a moment, the guns stop firing and it seems like the war might, at last be over.  Captain Darling announces “Thank God.  We lived through it, the Great War, 1914 to 1917.”  Knight goes on to explain:

The truth is what we are seeing now is a phoney housing market, a false hope….  Government action and lender fears about driving prices lower have led to a surprisingly successful stemming of repossessions.  But many homeowners who would normally be looking to move aren’t, perhaps because they fear moving up the ladder and taking on more debt, or perhaps they feel that they may not be able to get a decent mortgage rate if they do move.  …First timers are still desperately thin on the ground.  And who can blame them?  They don’t know if they’ll keep their jobs, and lending criteria are still tight.  Make no mistake, without first-time buyers there can be no sustainable recovery.

So don’t be too quick to ask, “How was it for you, Darling,  the Great British Housing Crash, 2007 to 2009?”  It may not yet be over.

If you are struggling with debt, click on the picture above, which links to advice on debt consolidation.

Currently a typical re-mortgage for people with poor credit ratings is approximately 8.5% APR with secured loans at around 14.5% APR.

These interest rates should be lower than the combined average of your current debts; you can check how much you could save by using this simple consolidation calculator.

Debt consolidation allows you to consolidate your outstanding debts into one loan. This fixed monthly payment offers a lower interest rate, which effectively lowers your monthly repayments so you save money.

If you are unable to get a secured loan then you could look towards obtaining an unsecured loan, your interest rates will inevitably be much higher as you are seen as a higher risk client.

If you do take out a secured loan for debt consolidation purposes and it is secured against your home make sure that you are 100% able to pay this back otherwise your house could be repossessed. It is best to write down all your monthly outgoings before signing on the dotted line just to make sure you will realistically pay this loan back and not have your house repossessed.

Debt consolidation secured loans – These allow you to consolidate unsecured debt with a secured loan.

Debt consolidation remortgage – Allows you to move unsecured debt which is usually at a high interest rate onto your mortgage at a lower interest rate.