Bank debts, including overdrafts, personal loans and mortgages are commonplace and good financial management can see that you are eventually debt-free. However, there may be situations where your income is reduced, your expenses increase, and you may struggle to make short-term repayments.
Paying Off Your Bank Debts
If you are struggling to pay off debts to your bank, speak to them. Banks will offer support such as payment holidays or restructured payment plans so that you can resolve your financial difficulties, but they will still get their money.
Contrary to popular belief, if you approach your bank at the first sign of potential financial trouble, they will often be accommodating and open to solutions. The key is to face your financial woes head-on and take action as soon as possible.
The sooner you take the action, the more options available to you and the more accommodating your bank will be.
So, keep reading and get all the details about how to manage and reduce your bank debts.
- – Can a CCJ be removed.
- – What happens if I ignore a CCJ?.
- – Can creditors take my house.
- – Information on Stepchange the debt charity.
- – I have no money and need help.
- – The Debt snowball method.
- – Understanding Money anxiety disorder.
We update all our guides regularly. If you are researching debt and we haven’t got an exact guide that helps you, keep coming back as we update daily.
What Should I Do if My Overdraft Is Out of Control?
Overdrafts should be seen as a short-term solution to short-term cash flow issues. The average interest rate on a UK bank overdraft at the moment is around 40% per annum. When you consider that personal loans rarely exceed 10% in the current market, there are viable alternatives which you need to consider.
If your overdraft is running out of control and you may even exceed it in the short-term, there will likely be significant interest AND costs incurred. It may be time to consider a structured, longer-term personal loan with set regular repayments.
How Secure Is My Overdraft?
Many people assume that after negotiating an overdraft, it will be there forever and a day. In reality, while there is not normally a term for an overdraft agreement, it can be terminated at any time by the bank.
As long as you are living within your means and you are not exceeding your overdraft limit on a regular basis, there is every chance it will continue for some time to come. However, when it starts getting out of control, then your bank may start to ask questions and could withdraw the facility.
Can I Convert My Overdraft Into a Personal Loan?
If you are experiencing significant cash flow problems then rather than converting your outstanding overdraft into a personal loan, your bank may decide to suspend your overdraft and switch to monthly repayments.
You would not have access to any overdraft funds. Indeed your bank account would likely be frozen, and once the debt had been recovered, your accounts would be closed. In some circumstances, your bank will agree to freeze interest on your outstanding overdraft if you are experiencing serious financial difficulties.
However, you may need to negotiate hard to stop them charging more interest on your outstanding balance!
What Should I Do if I Can’t Cover My Mortgage Payments?
Unemployment is a harsh reality for many people, and it can have a huge impact on short-term cash flow. If you foresee a change in your employment position and an impact on your short to medium term cash flow, then it makes sense to approach your bank about your mortgage and any assistance they can offer.
Ideally, you should approach your bank before you miss any repayments as these will appear on your credit rating and impact your ability to obtain finance going forward.
What Are the Options if I Can’t Pay My Mortgage?
Many people automatically assume that if they fall behind with their mortgage payments, then their home is immediately at risk. This is not the case. If you are struggling with your mortgage payments, then it may be possible to negotiate a short-term mortgage holiday, extend the term of your mortgage or even look to release some equity if applicable.
The repossession of family homes is a last resort although as the mortgage is secured against the property, it is an option in extreme circumstances.
What Should I Do if I Can’t Make My Personal Loan Repayments?
If you are experiencing financial difficulties, it is very important to contact your lender as soon as possible and make them aware of your situation. The majority of personal loans are unsecured, which means there are no assets available in the event of default.
Normally your lender would look to help you in the short term, perhaps by extending the loan term on reduced monthly payments. This would assist with short-term cash flow. In the event that you were unable to make any payments, then they could take action via the courts and may seek a Charging Order.
What Is a Charging Order?
A Charging Order is a legal ruling which places a charge over your home or other defined assets. As a consequence, you would not be able to profit from the sale of the asset while the Charging Order was in place. In theory, a Charging Order could be used to protect relatively small debts of just a few thousand pounds.
The creditor would have no right to sell the property unless they were able to obtain an “Order for Sale”, but they would be behind other creditors who also have debts secured on the property.
Would My Bank Consider a Debt Consolidation Loan?
In the event that you were struggling to stay within your overdraft and were in danger of falling behind on your personal loan repayments, your bank may well consider a debt consolidation loan. They would obviously need to carry out a credit check before approving any such a loan, but it is certain not beyond the realms of possibility.
However, there may be a problem; if your financial situation has started to deteriorate already and you have perhaps missed or been late with debt repayments, then your credit rating may already have started to deteriorate.
As a consequence, you may fail the loan approval test, or if successful, you may be charged a higher than normal interest rate as a consequence of your credit rating.
Should I Take Professional Debt Management Advice?
It may be that your situation is out of control and you have a limited if any income available to repay existing bank debts. In this situation, it would be advisable to seek debt management advice as there may still be a number of options available to you.
Even with the best will in the world many of us will experience financial difficulties at some point in our lives. If this impacts your ability to maintain bank debt repayments then you should contact your bank as soon as possible.
There are many alternatives open such as extending the term of your finance, converting your debts into a consolidation loan or even releasing equity from your property to alleviate your financial pressures. It is important that you are aware of and consider all options available to you.
Quick Debt FAQs
You only need to ask somebody who suffers from money anxiety disorder to realise how this can impact your life. It can prompt extreme behaviour from an individual which goes above and beyond just being concerned about money – it becomes a kind of obsession.
The debt snowball method is a process by which you make minimum payments on all of your outstanding debts. Any surplus capital is used to top up repayments on your smallest debt which will be paid off quicker, and then you move onto the next smallest debt.
Many local authorities in the UK will offer a local welfare assistance scheme which is there to help those experiencing extreme hardship. It is there to help with the cost of essential goods such as food, clothing, household items and covering your utility bills.
While your home will be recognised as an asset and could potentially be sold to repay your creditors, this is not as straightforward as many people assume. Upon bankruptcy, the legal ownership of your home would be transferred to a trustee to prevent a sale.
The issue of a CCJ will not be the first time that the creditor has tried to contact you to arrange payment of an outstanding debt, or an alternative arrangement. Ignorance, burning correspondence, binning the letters and just burying your head in the sand is not the answer.
A CCJ will come after a default note has been added to your credit file will certainly have a huge impact on your credit score. Traditionally, like other debt management arrangements such as IVAs, a CCJ will remain on your credit file for six years.
How Can Money Savings Advice Help You Reducing Your Debt?
Here at Money Savings Advice, we have partnered with some of the UK’s debt release brokers. They have already helped thousands of people reduce and remove a high percentage of debt, and if you are struggling with debt, they can do the same for you.
Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.
If you would like to speak to one of these brokers, then click on the below and answer the very simple questions.