Advice on Resolving Bad Debts

by : James Miller

A bad debt is any form of credit where the money lent has not been reimbursed within the terms and conditions of the lending contract. A debt is determined as bad where it is unlikely that the creditor will ever recover the money. A bad debt on your credit file will make it less easy if you want to borrow money at a future point.

Having a lot of debt and not having enough money to service the repayments is a horrible position to be in. However, it is important that you do not panic - instead, by actually facing up to the problem and taking steps to tackle it, you will find that the problem lessens and you will feel more in control.

Never, ever ignore debt problems - they won't go away and will only get worse.

Here are some simple steps on tackling a debt problem:

1.First of all, draw up a list of all the money you owe, prioritising them as to their importance. (While all debt is important, arrears on your mortgage or rent is more important than a debt on a credit card or a sofa - you could lose your home if you don't pay the former; the latter is not essential).

2.Then work out how much money you can realistically afford to pay on your debts each month. Divide the money up - if you have any left - and set about allocating money to the most important debts first.

3.Also, use this exercise to see whether you can make cutbacks to your financial commitments. Downsize your car; get a part time job to increase your income; check that you are not missing out on tax credits; swap nights out for cheap nights in etc

4.Then contact your creditors and explain that you can only afford to pay so much. Send them a letter showing a breakdown of your budget and financial commitments etc so that they can understand your financial situation. Most companies will be sympathetic - they would rather that you come to them and try and pay them what you owe rather than them getting nothing back at all. If you do not feel confident doing this yourself, your local Citizens Advice Bureau (CAB) can put you in touch with organisations who can help, for free.

Creditors are not allowed to pressurise or hassle you and if you have made them fully aware of your financial situation and they still continue, again, speak to your local CAB or similar organisation.

Finally, try not to borrow more money to repay your debts. Go about gradually paying off your existing ones - changing your lifestyle if you need to for a while - and plan for the day when you'll be debt free!

Here are some additional information regarding terms related to this subject. A debt management company assists you to re-arrange your finances in order to get you out from under debt. However, they generally charge a fee for their involvement and they may even suggest arranging further lending!

The National Debt Line is a countrywide telephone helpline. It offers free, impartial and confidential counsel to persons on dealing with debt conflicts in England, Wales and Scotland. Their phone-in helpline is on hand seven days a week and they also have an internet website that has plenty of useful assistance and advice on it. National Debtline is a branch of MAT (the Money Advice Trust, which is a registered charitable organisation. The Money Advice Trust offers the public an ordered plan to correcting severe personal debt problems so they will regain control of their finances.