Monday, March 7, 2011

How to Budget and be Free from Debt

The key to getting out of debt is to plan the family finances. Easier said than done, perhaps, but a vital step in avoiding bankruptcy, which is the ultimate price to be paid for letting debt issues get out of control.

Devising a practical repayment plan that can stave off bankruptcy takes time and effort. It may be that some impartial and practical debt advice can help outline all the steps necessary to make a debt management plan that would be acceptable to lenders. If the aim is to find an acceptable repayment plan then knowing what to aim for can save time, effort and money.

Impartial and practical debt advice can help with setting out a sensible and all inclusive budget. It is easy to forget to include items of spend that occur irregularly by simply studying one or two months. These may include motoring costs such as insurance, servicing costs or replacement tyres or items such as the annual TV licence fee.

Getting a complete picture of the expenditure is vital for successful budgeting, as is developing a sense of discipline in saving and spending. This may be the hardest part of any repayment plan as it requires a change in habits and lifestyle that may have become ingrained over many years.

Where large amounts of debt are involved then the options become clear cut and with a real reason to change. Smaller debt levels lack that sense of urgency or need to change but as any impartial debt advice will demonstrate the situation can escalate quickly if left unaddressed and bankruptcy could loom ever closer.

Bankruptcy should be far from any debtor's thoughts but remain as a final, but avoidable, solution to debt problems. Professional advice will help get to a position where a debt management plan can be developed that will help steer you back to financial wellbeing. However debt advice is only that – advice. The hard part is listening to that advice and making the changes to spending habits to actually make it achievable.

No lender will simply walk away from any unpaid loans. Finding a repayment plan that is acceptable to all lenders can be a tricky and involved process. Independent advice and advisors can point debtors in the right direction or act as intermediaries to get the best possible terms given the situation in hand. For those with debts over £15,000, there is the possibility of a legally structured debt management plan called an Individual Voluntary Arrangement (IVA). This is the final step before bankruptcy but has a number of advantages in that it is a private arrangement and avoids the loss of all personal assets.

It also involves receiving advice from a licenced insolvency practitioner who will also work with the debtor to establish what they can afford to pay given their income and expenditure. The debt management plan agreed will ensure that people retain enough to live on, although this may be tighter than before!

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