Everyone is in debt to a certain extent, but problems arise when the amount of money you owe is more than you can pay back out of your regular income. When debts begin to mount up and get out of control, it is easy to panic and think about borrowing more money or taking on additional credit in order to deal with the immediate problem of creditors demanding their money. This is rarely the best option, and your first action should be to discuss your situation with your creditors.
The long term solution to all debt problems is to negotiate with your creditors to reach agreements for paying back what you owe (or perhaps only a proportion of it) at a rate that you can actually afford. The first step in this process is to write to your creditors to explain your situation and why you are not able to pay them what you owe right now. Millions of people are in debt and there are all sorts of reasons for this. It is nothing to be ashamed of, and it is far better to be open and honest with your creditors about the reasons for your situation. If they feel you are not being straight, they may assume you just don’t want to pay, and may not be inclined to want to reach an agreement with you. Whatever has happened in the past, and whatever tactics they have tried to get money out of you, all your dealings with your creditors now need to be rational, professional and honest.
This initial letter from you should explain your circumstances, detailing why you are now in a situation where you are unable to keep up with payments. Tell them that you seeking help to deal with the situation and that when you have made progress you will be writing to them again with a full financial statement and an offer of payment.
In this first letter you should also ask them to confirm the details of the debt, so that there is no misunderstanding about what you owe them. Ask for details of the amount you owe, any arrears, outstanding penalties or extra interest charges, whether the debt is secured or unsecured and whether there is any insurance policy attached to the debt.
Make sure you include all your creditors and check the replies you get to ensure that you agree with the information they provide about the debts. If there are additional penalties or extra interest for late payment, it is well worth contacting them to see if they will at least waive these charges and stop them building up while you try to negotiate a settlement.
The next stages in the negotiation process involve creating a Personal Financial Statement, prioritising your creditors and negotiating repayment terms. These will be dealt with in detail in separate articles.
Read a detailed step by step guide to getting out of debt on the Debt UK website.
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