Controlling your finances _ debt

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					                Controlling your finances & debt

                            Debt Free Direct




Debt Free Direct Ltd 2010
0800 988 4118
                                                   1
Contents
Introduction to this Guide .............................................................................................................................................. 3

Who are Debt Free Direct?............................................................................................................................................. 3

Credit Reports – explained ............................................................................................................................................. 3

Creating a Personal Budget ............................................................................................................................................ 4

            Step 1 – Income & outgoings statement............................................................................................................ 4

            Step 2 – Your Unsecured Creditors.................................................................................................................... 5

            Step 3 – Calculating affordability of the agreed payments ................................................................................. 6

            Step 4 – What to do with your personal budget ................................................................................................ 7

Debt Solutions – what are they? .................................................................................................................................... 8

Debt Collectors & Bailiffs – what are their roles? ............................................................................................................ 8

Frequently Asked Questions .......................................................................................................................................... 9

            What is an interim charging order? ................................................................................................................... 9

            What is a final charging order? ......................................................................................................................... 9

            What is a County Court Judgement? ................................................................................................................. 9

            What is a default notice? .................................................................................................................................. 9

            What is a statutory demand?............................................................................................................................ 9

            What does APR mean? ................................................................................................................................... 10

            What are arrears? .......................................................................................................................................... 10

            What is a creditor? ......................................................................................................................................... 10

            What is an unsecured creditor? ...................................................................................................................... 10

            What can I do if I’m being harassed by creditors? ........................................................................................... 10

            What can I do to stop the bailiff visiting my house? ........................................................................................ 10




Debt Free Direct Ltd 2010
0800 988 4118
                                                                                                                                                                          2
Introduction to this Guide
This guide explains how to take the initial steps to managing finances and identifying whether a serious debt
problem exists. This document is in it’s self an introduction to the world of managing finances and a looming
debt problem by outlining the type of solutions available to address mounting debt problems, explaining
common jargon and a few of the issues affecting those suffering with debt.

There are other guides provided by Debt Free Direct that you may find useful if you are looking to discover
more about solutions to debt. Dealing with a debt problem is a very delicate and complicated issue. In order to
deal with a problem thoroughly and efficiently you should ensure your full circumstances are assessed by a
professional who is licensed to give advice on these matters.

Who are Debt Free Direct?
Debt Free Direct Ltd specialise in giving free advice on people’s personal debt which has become
unmanageable for them. We are not funded by creditors, which means we offer advice that we consider is
right for you, the customer. We have helped thousands of people with expert, impartial debt advice. That
advice can literally be a lifeline that can help you out of difficulties and put you back in control.

We look at your whole circumstances to see what’s best for you. Because we have a consumer credit license,
are fully OFT compliant and are regulated by the ICAEW, we can give you advice you can trust. If you choose to
follow our advice we can set up a wide range of debt solutions as well as look at ways of saving you money.

You can also be reassured you are getting the best from an approved member of R3 Business Recovery
Professionals, The Debt Resolution Forum and The Debt Standard.

Our debt advice is always free, objective and without obligation. If you wish to contact us to discuss your
situation for free call 0800 988 4118.

If you are calling from a mobile let us know so we can call you straight back for free.

Credit Reports – explained
A credit report is a tool used by companies to decide your credit worthiness. A credit report agency, such as
Experian, Equifax and Call Credit, collate and provide access to credit reports.

Every time you make a credit application the organisation you’re seeking credit with will require access to your
credit file and will request your permission for this. This hard inquiry will be recorded on your credit report so
that other lenders can identify an application for credit. Soft inquiries do not have an effect on your credit
score/rating and will not be visible to lenders on your credit report. These include; unrecorded enquiries,
quotations, identity verification checks and credit report applications i.e. when you access your own report.

Default notices, CCJ’s and formal proceedings would be lodged with credit report agencies and will stay on a
credit file for 6 years (unless the creditor authorises it to be removed sooner). A credit score is specific to an
individual but may contain ‘links’ to people you are or have been associated with e.g. a partner or spouse.

Getting hold of a credit report can be useful to identify all of the organisations who you have now or in the last
6 years had a financial agreement with. It can also provide you with their contact details for if you require
further information.
Debt Free Direct Ltd 2010
0800 988 4118
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Creating a Personal Budget
Working out a personal budget is the first step to    (B) Your outgoings
understanding, managing and reducing debts.
                                                     Mortgage                                  £
Step 1 – Income & outgoings statement
                                                     Mortgage endowment policy                 £
The income and outgoings statement is important as
it will reveal how much money can realistically be   Second mortgage                           £
afforded as a monthly repayment to creditors. Any
                                                     Rent                                      £
payments to be made on secured loans, such as a
mortgage or car hire purchase, must be included in   Council tax                               £
the outgoings summary (table B).
                                                     Water rates                               £

  (A) Your income                                    Ground rent / service charge              £

 Wages or Salary (take home)              £          Buildings and contents insurance / life   £
                                                     insurance / car insurance
 Partner’s wages or salary (take home)    £          Gas                                       £

 Jobseekers Allowance                     £          Electricity                               £

 Income Support or Pension Credit         £          Car fuel                                  £

 Tax credit (working & family tax credits) £         TV licence                                £

 Retirement or works pension              £          Magistrate’s court fines                  £

 Child benefit                            £          Maintenance payments                      £

 Incapacity benefit                       £          Vehicle hire purchase                     £

 Maintenance                              £          Other hire purchase                       £

 Non – dependents contribution            £          Travelling expenses                       £
 Other (including pensions)               £          Household food and toiletries             £

                                                     Clothing                                  £
 Total monthly income                     £
                                                     Mobile phone                              £

                                                     Broadband / home phone / Sky package      £
  (C) Money left for your creditors                  Prescription and health costs             £

Total income (from table A)      £                   Child minding                             £

Total outgoings (from table B)   £                   Other (including pensions)                £

Income minus
outgoings                        £                   Total monthly outgoings                   £

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(A) Your income
   Table A brings together all of your sources of income, including your take home monthly wages or
   salary, any benefits, allowances or maintenance that you may receive – and any payments received
   from a pension.

    You need to calculate these figures as accurately as possible. Knowing exact amounts is vital if you
    want to know exactly how much spare money you’ll have left over at the end of a month.

    If you don’t know exactly how much you receive each month then check a recent bank statement. That
    will help you to spot every individual source of income you have.


(B) Your outgoings
    The outgoings section (table B) covers all of your spending including monthly mortgage or rent
    payments, council tax, utility bills, housekeeping, clothing, child care and more.

    Accuracy is essential here too. It’s by using exact figures in this section and the first section that you
    will know how much spare money you have each month.

    As before, if you don’t know exactly how much you pay out each month then check a recent bank
    statement. It will help you list each individual amount.


(C) Money for creditors
    Now use table C to work out how much money you have left over to pay your creditors. Just take away
    your total outgoings from your total income. If your income is more than your outgoings, you’ll have
    some money left over to repay to creditors.

This is your personal budget, so figures need to be based on what is actually happening and all possible
outgoings should be listed and complete. By estimating items on your budget and leaving bits out you will
struggle to stick to a long‐term plan.



Step 2 – Your Unsecured Creditors
Now make a rough copy of the chart on the following page and fill in the details of your unsecured
creditors. You should include all of the following:

     o    The name of each creditor
     o    The outstanding balance (what you still owe to them)
     o    The monthly payment you agreed to repay

Remember, this list should include only unsecured creditors i.e. don’t include debts that are secured on
your home or your car.

When you have finished, add up all of your outstanding balances and put the total at the bottom of the
table. This is your total unsecured debt. Add up all of your agreed monthly repayments and also total this
at the bottom.




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Once you have totalled your unsecured debt & agreed payments, you will be able to fill in the final right‐
hand column with a calculated amount of what you can realistically afford to repay in step 3.



     Unsecured Creditors
           Name of company/person                 Outstanding               Agreed monthly              Affordable
              you owe money to                     balance                     payment                   monthly
                                                                                                     payment (step 3)
                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £

                                            £                           £                        £


Totals:                                    £                            £                        £



Step 3 – Calculating affordability of the agreed payments

Based on what you have done in step 2, you should have a list of unsecured creditors and what is owed to
them. You can now work out based on your income and outgoings what you can still afford to pay each
creditor per month. The number that you put in the right hand column is calculated as follows, using the total
you worked out in step 1, table C and your total unsecured debt from step 2:




Debt Free Direct Ltd 2010
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    Affordable monthly                  Outstanding balance
    payment to each           =                                      x Your total monthly disposable income
    creditor                          Your total unsecured debt



To help you with this calculation, there is a practical example below. This example is based on someone
who owes £4,472.71 and has a monthly disposable income of £250.

Example:
   Monthly disposable income: £250
   Total unsecured debt (all creditors): £4,472.71
   Outstanding Barclaycard balance: £983.76

    Affordable monthly payment to Barclaycard:

    £983.76 x £250          = £54.99 per month
    £4,472.71

    So you would enter £54.99 into the right hand column for your affordable payment to Barclaycard.


Finally complete the following summary using the totals from the table of unsecured creditors:


    Money remaining after all payments to creditors
   Total agreed monthly payment                               £

   Total affordable monthly payment                           £


   Affordable payment minus
   Agreed payment                                             £
The final figure in this summary is your monthly disposable income remaining after paying back all of your
commitments to creditors (final disposable income). This indicates whether you can afford to keep up these
commitments and to what extent, if any, you are facing financial difficulty.


Step 4 – What to do with your personal budget

Your personal budget is now complete. You should now have a firm grasp of what financial position your
current spending needs and income is leaving you in each month in addition to what money you owe and to
whom.

The most important section of your personal budget is the summary with your final disposable income (after all
payments). This figure illustrates whether you can afford to keep up with creditor payments or you need to
look at alternative solutions to maintain your commitments.




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Each month check what is coming in and going out matches your budget. This will ensure that your budget is
indeed true to real life. If anything in your circumstances change, alter your personal budget at that time to
keep on top of the impact the change will have.

You will find there are items you occasionally need to fork out for which are not included in your personal
budget. These need to be afforded by using your final disposable income. If this is not possible and spending is
necessary then remain realistic, consider the impact on your finances, and whether you do need a new course
of action to resolve any mounting debt.

Finally if you are aware you cannot keep up with your agreed payments or think your situation is getting out of
control remember you can phone Debt Free Direct to discuss your circumstances and receive free advice. This
guide is a good introduction to managing and understanding debt but remember to follow up concerns you
have with us, our help will put you back in control.

Call Debt Free Direct for free on 0800 988 4118



Debt Solutions – what are they?
There are numerous solutions, here is a list covering the more common options:
   o Individual Voluntary Arrangement (IVA)
   o Debt Management Plan (DMP)
   o Re‐mortgage
   o Bankruptcy
   o Debt Relief Order (DRO)
   o Administration Order
   o Consolidation Loan
   o Self Help Plan (Informal arrangement)

It is rare for a debt problem to be solved without addressing it, unfortunately with rising interest being payable
on top of your debts and the threat of further action from creditors (e.g. repossession or legal action such as a
CCJ or bankruptcy petition) the situation could get a lot worse. If you are struggling to manage large debts then
it is worthwhile speaking to an organisation such as Debt Free Direct to allow them to assess whether your
circumstances would benefit from their services.

For further information on the above debt solutions please download our Guide to Debt Solutions.



Debt Collectors & Bailiffs – what are their roles?
A debt collector is someone who contacts people to arrange collection of repayments. Collectors will either do
this by post or a telephone call. They can progress to visiting properties to collect the payment if required
however they cannot enter a property or seize goods.

A bailiff is appointed on behalf of an organisation who is owed money, to collect the repayments. They are
officers of the court and do have the power to take legal action against the person owing money if payments
are not made. If bailiff visits want to be avoided and the money owed has a CCJ attached it’s advisable to speak
to a local court about payment arrangements for the debt.


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What can bailiffs do?
  o Visit your home to collect payment
  o Agree repayment terms with you
  o Enter your property through an open door or window to seize goods as a form of repayment
  o Charge fees for visiting your property to collect money

What can bailiffs not do?
  o Take essential items such as clothing, bedding, cookers, fridges, most furniture and the 'tools of your
       trade'
  o Force entry into your property unless the money is owed HMRC or is a court fine



Frequently Asked Questions

What is an interim charging order?

An interim charging order stops you from selling the property until a court hearing can take place to decide
whether they money owed should become secured (in the same way a mortgage or secured loan is secured).

An interim charging order is a pretty serious procedure and is something that needs to be dealt with urgently.

What is a final charging order?

A final charging order means the money you owe becomes a secured loan against your property. It is likely you
will be asked to make repayments to the debt in the same way you have to pay your mortgage. Failure to make
repayments to a charging order could mean your property is at risk of repossession.

A final charging order can only be made after a court hearing has taken place. You should attend this hearing
and advise the court of any objections you have to the order being made.

What is a County Court Judgement?

A County Court Judgement or CCJ is an ‘order to pay’ made by the court. It is the first form of action taken by
someone whom you owe money to. Failure to pay or come to repayment arrangements for a CCJ is likely to
mean further legal action is taken against you. This can include an attachment of earnings, charging order or
bankruptcy.

What is a default notice?

A default notice is registered by your creditors once you breach the terms of your arrangement with them, for
example by missing repayments. This notice is lodged as a record on your credit file and will last for 6 years. It
will notify people who look at your credit report that you have defaulted on the terms of an agreement and it
can therefore impact your ability to obtain credit.

What is a statutory demand?

A statutory demand is the first step to bankruptcy. It’s a very serious document that gives you 21 days to pay
the money you owe or to come to an arrangement to repay. If you do neither of these during this time the
person you owe money to could petition for your bankruptcy.
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What does APR mean?
APR stands for Annual Percentage Rate. It shows the overall cost of a loan each year, taking into account the
term, interest rate and other costs.

What are arrears?
An arrear refers to an amount of money that should have been paid to the creditors but which has not been
paid.

What is a creditor?
A creditor is someone who you owe money to.

What is an unsecured creditor?
Someone who has lent you money without security for the money owed (unlike a mortgage, for example).

What can I do if I’m being harassed by creditors?

If you are being harassed by creditors through excessive or threatening phone calls, letter or home visits you
should follow these steps;
     o Inform them that you are familiar with the terms of Section 40 of the Administration of Justice Act
         (deals with harassment chasing payments)
     o Tell your creditors how you would prefer to be contacted (by post)
     o Ask them to remove your phone number from their system and to only communicate via post
     o Tell them that under the OFT’s guidance you will make a formal complaint if the harassment doesn’t
         stop

What can I do to stop the bailiff visiting my house?

If the money owed has a CCJ attached then speak to a local court about payment arrangements for the debt.




  If you wish to speak to us about anything you have read in this or other guides and if you wish to have a free
           assessment of your situation then please get in touch on the following freephone number.

                                                    0800 988 4118

             If you are calling from a mobile please let us know so we can call you straight back for free.




Debt Free Direct Ltd 2010
0800 988 4118
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