The problems when debt gets out of hand

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The problems when debt gets out of handEveryone experiences at least some form of debt at some point in their lives whether in the form of credit cards, overdue business costs, hire purchase or the likes. There are many ways of managing matters related to debt, from dealing with emotional to practical aspects.

In this post we will go through some of the salient points which often crop up when debts are involved. Read on to find out more.

Demands from creditors

Letters of demand can prove to be extremely stressful, particularly when they threaten to take legal action if the debt isn’t resolved within a certain time. It is important to know that it is always possible to dispute a debt if there are any doubts regarding the amount owed which can include penalty fees and added costs.

It is also illegal for a debt collection agency to continually harass debtors with constant phone calls. If this occurs you can now complain to the Financial Ombudsman and request that they only send information in letter form.

Court action from creditors

It is possible for a creditor to start court action in order to recover any amount. This can happen if the creditor feels they are not getting an appropriate response from the debtor or, in the course of negotiation, does not accept whatever offer of payment was proposed.

The easiest example of the most common action take in England and Wales is a county court judgement. A form will be filled and, in most cases, the offer of repayment will be accepted.

Embarrassment

It is very common to be embarrassed by debt, and even more so if debtors were previously known for their good standings in financial terms. There is no need to be embarrassed by debt as it is not an extraordinary circumstance.

It is always better to do something about the debt rather than trying to hide it or ignore it. Possible solutions are debt consolidation or declaring bankruptcy, though there are many more options. An important aspect to all of this is that doing something about it will save you from further embarrassment in the long run.

Adverse effect on credit score

Not repaying debts will undoubtedly have an adverse effect on your credit score, as will bankruptcy. It is possible to improve a negative credit score overtime, and the most common method is keeping up with repayments.

Other things to improve credit score are having a long-term bank account, long-term job, fixed phone line, having registered on the electoral roll at a long-term address and the correct registration of debts to the proper name and address. As long as all these things are observed and repayments kept up with, the score should be rectified over time. Asking for credit continuously and making too many applications will also have a negative effect.

Taking action

It is best to take action against debt early so that it will not escalate further. As briefly mentioned, there are solutions like debt consolidation and going bankrupt, but many more exist. Debt consolidation is putting all debts into a single loan and repaying it. This is a convenient solution as it helps in managing debt efficiently.

Trust deed as another solution which is essentially an agreement between the debtor and creditors. This means any assets will be passed onto a trustee who will help to manage repayments to creditors, as long as they accept the legally binding agreement. Bankruptcy should always be a last option.

Another option is to ask for the debt or part of it to be written off. This is a possibility and some creditors may agree to do it, and even enter into a legally binding arrangement that helps protect the debtor. In conclusion there are many options to be considered and taking professional debt advice is always the best way to proceed.

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