I bet the blog post title got your attention. The image is also the complete antithesis to my general outlook on life. It is precisely how this situation has made me though, and no doubt to some degree you will end up sharing it with me!

I don’t mean benefit fraud is acceptable to me, of course. I mean it appears to be acceptable to the Department for Work and Pensions and Her Majesty’s Revenue and Customs. Now before the lawsuits start arriving, I suspect I should begin to justify those opinions.

Moving House

Back in October 2011 I moved in to my current residence. It’s a beautiful ground floor apartment in a sparkling Marina, with fresh sea air, sunshine all day and free allocated parking despite effectively being in a huge metropolitan area of England (albeit at a slightly lower elevation). As always when moving in to a new property, in the beginning – and still now, occasionally – I have fun with bailiffs and debt collectors looking for the previous residents. To this day I continue opening their mail to contact those sending it to advise “not known at this address” as the majority of them have no return address to be sent back to. A little naughty perhaps, but if it stops bailiffs breaking into my house over parking fines, council tax and so on, then I’m sorry but my need to protect my family and property overrides mail transmission law, in my view.

Occasionally, bank statements come through. I bank with the same bank as the previous residents (it turns out), and my partner does not. When I see their envelopes in the mail pile I’ve been conditioned over the years just to open them. There seems little point in glancing at the addressee – it’s going to be me! But occasionally it is not. I’ve contacted my bank and told them they don’t live here any longer on two occasions now, but still they keep coming.

Noticing and Reporting A Fraud

The previous residents of my flat moved back to an Eastern European country early October, 2011. They have not been back to the UK since, and have no intention of doing so. They have a small child, for which they were claiming Child Tax Credit and Child Benefit. I have no issue there. This country is a member of the EU, and as far as I am aware both parents worked.

My problem began when I accidentally opened their first bank statement in December 2011, and noticed the payments were still going in from both agencies. Being a somewhat irate tax-payer, I contacted both the DWP and HMRC on their respective fraud lines. I’d like to give a small “well done” to DWP for having an 0800 number to report these matters on (0800 854 440) and say “shame on you” to HMRC for enforcing the use of an 0845 and costing me money to report someone stealing my money.

I gave both agencies full names, address, bank account details, National Insurance numbers, inside leg measurements and a rough idea where they had gone back to (from the place names on the bank transactions). I was thanked for my assistance and left it at that, safe in the knowledge that I had gone some way of my own volition to reducing our national debt.

Reporting it: Round One

A month later at the beginning of January 2012, more bank statements fell through my door, intermingled with my own bank and credit card statements. I tore open the lot again not paying the slightest attention to the addressee (maybe this is wrong of me? But it fell through my door). Again midway through thinking “I don’t recognise any of these transactions”, I realised it wasn’t mine again. The last transaction dated 6 days prior, was yet more Child Tax Credit and Child Benefit being paid in. Flicking through the pages, it had never stopped.

Again I rang the agencies concerned. “Well done” to the DWP for having the 0800, and for answering instantly. “Shame on you” to HMRC for still having an 0845 number, and not answering it for 20 minutes.

I gave the same information all over again. This time just in case they don’t take anonymous reports all that seriously, I gave my name, address, telephone number, email address, employment details (I like to think I have a trustworthy, upstanding job within the community), and offered to send copies of the documents as evidence. This was declined.

Round Two

Towards the end of January (you’ll notice a theme developing here) another tree fell through my door courtesy of Royal Mail. Half asleep I tore open the lot and repeated my 20 seconds of “has someone cloned by debit card?” line of thinking before realising it wasn’t my bank statement. Incensed at catching ‘CHB’ in one of the comments I scanned the rest of the statement. They were still in Eastern Europe, and still claiming both benefits.

Apparently, zero action had been taken on my reports despite having every piece of information asked for (twice!), and 3 months to act on it.

Round Three

I was so incensed I wrote to my MP. I asked some probing questions, and gave all case details to him to date. I asked why nothing was being done. I asked just what it takes to get an action on fraud reports, and if he’d be so kind as to tell me so I could do it. He wrote back by email the next day stating he’d written to Lord Freud, the Minister fo Welfare Reform (nominally attached to the DWP it appears, from his letterhead) and he would forward any response received.

On the 1st Febuary 2012 I received a posted letter from my MP enclosing the response from Lord Freud. He wrote:

“I am replying as the Minister responsible for this area of the Department’s work.

The information that is given to us by members of the public is key to many of our benefit fraud investigations. We therefore encourage any member of the public who might be aware of an individual committing benefit fraud to contact the confidential National Benefit Fraud Hotline on 0800 854 440. The line is available seven days a week between 7am and 11pm. Alternatively, suspicions can also be reported online at www.dwp.gov.uk/benefit-thieves

It is important to emphasise that, for reasons relating to data protection, we are unable to comment on any fraud investigation or enquiries that may be being made [my emphasis] by our investigators. This also means that we cannot provide members of the public with progress updates relating to the information they have provided. [I don't need an update from DWP - the statements I continue to receive say it all]. However, I can assure you that all allegations of benefit fraud are investigated and, where evidence is obtained to substantiate the information further, appropriate action is taken. Benefit fraud investigators are expected to progress cases without undue delay and investigations are brought to a conclusion as soon as enough evidence is gathered to prove or disprove the allegation made. The time taken to do this will depend on the nature of the allegation and the avenues of enquiry that will need to be pursued. 

While I should clarify that Child Tax Credit and Child Benefit are benefits administered by HM Revenue and Customs, both this Department and HM Revenue and Customs are absolutely committed to reducing the level of fraud and error in the benefit system and are working closely together to undertake a radical new zero tolerance approach. [Shouldn't benefit fraud always have been zero tolerance?] 

Finally, I am unaware of which 0845 your constituent has been contacting, however the advertised National Benefit Fraud Hotline is free to call from BT landlines. [Yes it is. But they will not take reports under any circumstances for Child Tax Credit. They will direct you to call 0845 300 3900].

Yours sincerely,

Lord Freud“

Check Mate

Today, March 23rd, 2012 I repeated the whole “tree through door” scenario. Today I again sleepily tore open my mail. Today I again opened a bank statement .Today I again see Child Tax Credit and Child Benefit still being paid in with no sign of stopping.

This case is probably repeated hundreds of thousands of times up and down the country (and in my case, across the world). Billions of pounds a year are being lost out of the benefit system due to fraud and error (DWP’s own statistics for 2011 put the value at £3,200,000,000 (3.2 billion pounds).

My job and livelihood, or at the very least my rate of pay is at risk because of government cuts, and yet just 0.15% of that headline figure would pay for what my employer is short by.

What else can I do?

 

 

This is part 4 of the Meltdown Monday series. You can catch up on part 3 here or start at the beginning with part 1.

I didn’t know it at the time, but organising your finances takes a lot of time and effort. I must have spent at least a week pouring over my bank statements figuring out where all my money was going. I had at least got to grips with who I owed, and how much I owed them. I didn’t know it at the time but this is the very first step to getting out of debt: Know what you owe.

I bumbled along for a few more months. In April I went on holiday to Cyprus with a friend because “I deserved it” and “I needed the break”. Looking back it wasn’t a bad look-after-me decision, but it was a bad money decision. I didn’t spend any money I didn’t already have, but it was money that would have been better put towards my debt. About a week into the holiday I promised myself that the £2,000 I’d likely spend in total was going to be my last conscious bad money decision.

When I returned home, I went spreadsheet crazy. I created a budget based on what I was spending having had my original thought to reduce my outgoings some months before. Then I went to see where I could save even more. By tweaking down the numbers and making myself think that was all the money I had, I started to spend even less. Money freed itself up for more and more debt repayment along the way and I could start to see debt freedom approaching. New Years Day was no longer an unattainable dream but a real possibility.

By the time I’d finished tweaking I had over £1,000 a month appearing as disposable income, based on my net take-home salary. If I stuck to my “do every piece that comes” overtime strategy for the year that would increase significantly. Not bad considering in November and December 2008 I was sinking fast into my overdraft and approaching the hard limit of the bottom.

I learned a few weeks later that my wife had, under the sheer pressure of her debt mountain been declared bankrupt. I suspect at that point my credit rating took a big hit as we were financially linked, courtesy of a joint loan we had taken out when we got married. That had fortunately been settled prior to us parting ways, but I needed to find out how to get the link between us severed before I applied for credit again. In all likelihood I’d get turned down for buying a chocolate bar on credit at this point, nevermind anything bigger.

I had mixed feelings about learning this. As much as I tried to be jubilant or consider it “revenge” as my friends and family encouraged, I couldn’t bring myself to feel that way. I was upset for her and what it meant for her in the long run. Going bankrupt is akin to financial suicide for a minimum of 6 years, and for life in certain respects such as buying a house. I would not wish that on my worst enemy, and certainly not someone I had in the beginning, loved very dearly.

And so we come to ‘now’. It’s approaching the middle of September 2009 and I’m on target for paying off my debt earlier than planned, if all goes well. I have paid off my Egg card entirely and have slightly over £200 remaining on my promotional 0% balance transfer. The loan I took out to replace the others is front-loaded, so I am saving like crazy to pay that off before my big day (in a high interest account of course). My divorce continues to rumble along in the background, rearing its head occasionally, courtesy of solicitor ping-pong.

And Five Pence Piece was born.

I had not intended to start a blog, and indeed didn’t until the middle of last month. I started to really get into some American Personal Finance blogs such as The Simple Dollar, No Credit Needed and Five Cent Nickel. These guys are all dedicated, hard-working folks who not only tell us their stories, their dreams and their hurts, but also try and educate us in the murky, difficult, confusing world that is personal finance. None of them claim to be experts (and none of them are), but they’ve all “been there and done that” and are willing to share their experiences along the way.

I wanted to try and so the same, but provide an insight into a UK journey of debt to prosperity, concentrating on UK products, UK issues and UK services. I want to help fellow British people get out of debt and free themselves from the consumer society we now live in. It’s almost never too late to realise that the things we own do not define who we are; who we are inside defines our outside. I want to be rich, but I know it’s a life-long road to get there and I’m not afraid of the hard work required.

As I say at the foot of every page on this site: Live according to your means, not up to your expectations.

You’re welcome to join me on my journey.

I’ll be honest when I make a mistake, to save you from making the same one. When I find a product, service or strategy that is useful, I’ll share it.  As you can probably tell from this series of posts, my first tip is contained within. Family finances should be discussed openly, honestly, and jointly. Agreement must be reached that both partners can live by.

If you’re not honest with each other then any relationship is destined to fail before it even gets going.

Did you enjoy reading this series? Did it teach you anything? I’d be pleased to engage you in the comments.

This is part 2 of the “Dig Yourself Out of Debt” Series, published every Thursday. Surfing old posts? You can catch up on Part 1 by clicking here, or view every post in this series by clicking here.

The title of this post may come as a bit of an obvious statement, “of course you need to spend less than you earn! Otherwise you’d end up in .. oh”. The accumulation of debt to problematic levels occurs when we spend more than we earn, often without realising it. A gym membership there, a mobile phone contract here.

In the worst scenarios we end can end up in a debt spiral where we keep taking on new credit to be able to make repayments on old, all the while hiding behind the pile of credit card and bank statements. Before you know it, your entire income is being spent making interest payments and there is nothing left to live on.

Worse still, when you come to grab more credit to live on, you get refused.

Congratulations: you’ve just financially imploded.

Now what do you do?

Hopefully you are not in that deep, but deep enough to have seen the danger signals. If you are in that deep or perhaps beyond, stick around because there is still some useful advice to be found here. If you’ve followed the advice in last week’s post, you hopefully know exactly where you stand in terms of what you owe. If you don’t have all that paperwork with you, go grab it. You’re going to need it.

A Statement of Affairs

Debt is only one part of the financial pie. To get to Total Situational Awareness, I’m going to get you to create a Statement of Affairs, or ‘SOA’.

This is basically a document that lists every single household expenditure and income source, debt, liability and asset. It sounds like a lot of work but it’s really not as bad as it sounds. If you can lay your hands on your recent utility bills or bank statements, you’re all set.  I’m going to provide a link to a little tool after the example below that’ll do most of the work for you but you will need to supply it with accurate numbers for the exercise to be worthwhile.

Selina Is In Trouble

I learn best by example, so I’ve come up with an SOA for my imaginary friend Selina. Her experiences are a little like mine, bless her. She’s had enough of her debt situation and wants to take charge, before it consumes her completely.

She holds down a well paid job but is finding despite this, she doesn’t have any money left after the bills to actually enjoy life and increasingly, is having to reach for her non-maxed credit card to make it to the end of the month.

For the sake of simplicity, she lives alone, and claims no benefits.

Statement of Affairs and Personal Balance Sheet 

Household Information

Number of adults in household........... 1

Number of children in household......... 0

Number of cars owned.................... 1 

Monthly Income Details

Monthly income after tax................ 1500

Partners monthly income after tax....... 0

Benefits................................ 0

Other income............................ 0 

Total monthly income.................... 1500 

Monthly Expense Details

Mortgage................................ 500

Secured/HP loan repayments.............. 0

Rent.................................... 0

Management charge (leasehold property).. 0

Council tax............................. 85

Electricity............................. 50

Gas..................................... 50

Oil..................................... 0

Water rates............................. 20

Telephone (land line)................... 15

Mobile phone............................ 45

TV Licence.............................. 12

Satellite/Cable TV...................... 45

Internet Services....................... 15

Groceries etc. ......................... 200

Clothing................................ 50

Petrol/diesel........................... 50

Road tax................................ 20

Car Insurance........................... 35

Car maintenance (including MOT)......... 10

Car parking............................. 0

Other travel............................ 0

Childcare/nursery....................... 0

Other child related expenses............ 0

Medical (prescriptions, dentist etc).... 0

Pet insurance/vet bills................. 0

Buildings insurance..................... 10

Contents insurance...................... 10

Life assurance ......................... 0

Other insurance......................... 0

Presents (birthday, christmas etc)...... 10

Haircuts................................ 25

Entertainment........................... 50

Holiday................................. 0

Emergency fund.......................... 0 

Total monthly expenses.................. 1307

Assets

Cash.................................... 500

House value (Gross)..................... 110000

Shares and bonds........................ 0

Car(s).................................. 2000

Other assets............................ 500

Total Assets............................ 113000

Secured & HP Debts

Description....................Debt......Monthly...APR

Mortgage...................... 80000....(500)......4

Total secured & HP debts...... 80000.....-.........- 

Unsecured Debts

Description....................Debt......Monthly...APR

Credit Card 1..................5000......250.......14.9

Credit Card 2..................1000......50........27.9

Total unsecured debts..........6000......300.......- 

Monthly Budget Summary

Total monthly income.................... 1,500

Expenses (including HP & secured debts). 1,307

Available for debt repayments........... 193

Monthly UNsecured debt repayments....... 300

Amount short for making debt repayments. -107 

Personal Balance Sheet Summary

Total assets (things you own)........... 113,000

Total HP & Secured debt................. -80,000

Total Unsecured debt.................... -6,000

Net Assets.............................. 27,000

In our example above, you can see Selina is currently spending £107 more every month than she earns. This equates to accruing £1,284 of new debt every single year until she implodes, if she does nothing. In Selina’s case, she was actually finding she was nearer £200 overdrawn each month rather than just £107. This was probably due to buying magazines and her weekly visit or three to Starbucks.

Working out your own SOA

The internet is great, and as usual someone, somewhere, has done most of the hard work already. You can work out your very own SOA by using this fabulous online tool. Once you have your own, see where you are at.

If you have cash left over each month, GREAT! You already spend less than you earn and that deserves a little pat on the back. Now carry on reading and get some tips for spending even less to free up cash for debt repayment.

If you calculated you have a shortfall like Selina though, DANGER. You’re heading for a debt spiral and definitely need to keep reading.

Cut Your Spending

This sounds really daunting and yet really obvious all at the same time. With some really simple and painless adjustments and a small amount of initial legwork, Selina ended up in the black each month instead of the red, and so can you. Alternatively you can use these tips to see just how easy it is go get extra money to repay debt quicker. Let’s see how:

She Switched Energy Tariffs

Instead of sourcing her gas from one company and electricity from another, she switched to a Dual Fuel deal and locked in with the same supplier for 12 months. This resulted in saving £15 a month. See if you could save and head over uSwitch, GoCompare, Money Supermarket or your price comparison site of choice.

She Cut Her Energy Use

Selina believed she was hopeless at “being green”, so she vowed to just do the simpler things and see how it helped. She turned down her thermostat on her heating by 1 degree, and reduced the boiler’s hot water temperature so it didn’t need to heat quite so often. She also changed to low-energy lightbulbs and made sure she switched lights off as she left the room. She found doing this saved her around £20 a month.

She Changed Mobile Tariff

In order to get the latest snazzy phone when she last upgraded, she had to up her price plan to £45 a month. This suited her at the time, but now she is looking for ways to cut back and this is a big expenditure (£540 a year!). A quick chat with her provider saw her  dropping from paying £45 a month to just £20: A £25 saving every single month, and she still gets sufficient texts and minutes to not need to pay for going over her monthly allowance.

She Dropped a Sky Package

Well, she threatened to. Selina realised she didn’t have the time to watch many of the sport and movie channels she got with her Sky package, so she phoned to cancel. However the person she spoke to offered to halve her bill for 6 months if she didn’t. She liked having the option of watching them so she went with it. In 6 months time if she is still feeling the pinch, she retains the option of dropping a package or two. £22.50 saved.

She Cut Her Food Bill

Selina loves Chinese takeaway, but at £10 a time on average, even if it supplied her with meals for two days, it was proving an expensive way to eat. She decided to cut down the takeaways to one a month, and cook more fresh food at home. This not only made her healthier in the long run, but made her enjoy her takeaways again rather than feeling like she ‘had to’. Additional savings can come from clipping grocery coupons. £50 saved.

She Sacrificed her Entertainment Budget

So far Selina has not had to make too many intrusive changes. In fact all but the food change resulted in no noticeable difference in her routines whatsoever. But Selina realised that if she wanted to be debt free quicker, then in the short-term she’d need to cut down on this. She did decide to keep her small LoveFilm subscription, and also a few pounds for drinks when invited out by friends but put the rest towards debt repayment. £40 saved.

She did a Credit Card Shuffle

In the words of Martin Lewis, there’s a conspiracy in the credit card world. The fact you don’t need new cards to cut your interest is covered up; new card applications are profitable – not just for lenders, but internet price comparison services that earn fees when you get cards through them.

By simply phoning her credit card companies and asking for a rate reduction – she got it, saving her another £40 a month in payments to her credit cards. All this cost her was (in her mind) the audacity to ask, and a 5 minute phone call to each card company!

Without even really trying, Selina has freed up £212.50 every month than that she was paying out needlessly, resulting in her being £172 in credit every month instead of deep in the red.

Could she do even better? She’s now caught the bug and wants to have as much spare cash as possible to pay off her debts. If you’re still with me here, let’s take a look at some other ways she can save some money.

Downshift

Selina is a bit of a foodie, and thinks nothing of buying premium brands, Finest bread and all the usual consumerist actions that supermarkets love us to do. She often grabs the first product that she spots, and that costs her dearly. Goods placed at eye level are usually the ones that the company makes the most profit on, so slow down and always scan the entire shelf space when looking to buy.

She decides to stop this practice and also buy less of the top branded products, and try dropping a level. This isn’t a case of going from ‘Finest’ to ‘Value’ (if you shop at Tesco), but instead trying the same product in a different price band to the one you normally buy. If you usually buy Finest, try a brand name instead. If you normally buy a brand name, try the stores-own. If you normally buy stores-own, try their value range.

Dropping one product level generally results in no noticeable difference in taste, but can mean pounds saved just on one product. If the drop doesn’t work for you in a particular product, by all means go back up again. This isn’t about torturing yourself.

The difference between the Finest product (1kg) and the Value product (which contains a full 500g more!), is £2.52. Every product level you drop down though, saves you money. The best value in that table when you consider taste and texture is likely the Own-Brand, saving you £2.30 in total for probably zero difference in taste. When you multiply that saving across your entire shopping trolley you begin to see how it adds up.

• If you buy a lot of fresh vegetables and products for home cooking, ditch the Organics, at least for now.
• If you buy a lot of meat, consider more vegetarian meals or bulk out the dish with vegetables and/or lentils.

By dropping a brand level and buying a little less meat, she shaved a further £40 a month off her food bill.

No Spend Days

Selina realised that on paper when she first did her SOA that she was – on paper at least – spending £107 more per month than she earned. Except, as we saw earlier, she was always nearer to £200 overdrawn each month.

Digging through the scrunched up ball of receipts in her handbag, she was horrified to add up nearly £80 of make up, magazine and Starbucks purchases that month alone.

Keep A Spending Diary

If you struggle to identify where your money goes every month, consider writing down every time you spend. At the end of the month, you’ll be surprised how much incidental spending you do. £2 on a coffee here, £5 on a couple of magazines while waiting for your train there: it all adds up. Once you know what you spend on top of your regular outgoings you can formulate a plan of attack.

Choose How Many In Advance

Not spending anything other than your budgeted-for items is hard. Doing it forever is even harder, and could lead to feeling deprived and splurging to compensate. Agree with yourself in advance how many days each week or each month you are not going to spend anything and then stick to it. Keep a diary and mark off your ‘NSD’s and then whether you managed it or not.

Keep a Reminder In Your Wallet

It can help to keep a reminder near your cards and cash, such as a picture of your kids, the house you want to buy, the car you want to get and so on. Every time you open your wallet you’ll see your reminder and hopefully consider whether what you are about to buy fits in with your own goal.

Know This: It Gets Easier

The first few weeks and months it will be hard if you’ve always bought what you want, when you’ve wanted it. However the longer you train yourself to not buy things on a whim, the easier it gets. I haven’t actually bought anything that hasn’t been in my budget now for 6 months and it feels great to have broken that consumerist cycle.

Up Your Income

This is slightly more difficult, requires work on your part, and  ultimately depends on how badly you need the money. Sometimes it’s no longer possible to spend any less than you already are without starving, but you find you are still spending more than you earn.

When you get to here, the only option is to up your income.

Do Surveys

Online surveys are a good way to earn an extra £20-30 each month if you dedicate a few hours a week to it. If you have the time, you can double this figure or better, but it depends on the survey site. Martin Lewis has some good advice on which are best. Selina made an extra £10 every month by spending just an hour a week doing surveys.

Sell Stuff

Artistic? Consider making and selling jewelery, cards or other craft items. If you work in an office and are allowed, put up a sign offering home-made ‘all occasion’ cards made to order. For 10 minutes of work you could charge upwards of £5 a piece.

Start a Blog

If writing is more your style and you have a topic you are deeply interested in, start blogging. The returns in the beginning are likely to be small, but if you are good at it and the topic draws large readership, it could make you thousands in the long term. Open your own free blog over at either WordPress or Blogger and see where it takes you!

Declutter

If your house is anything like Selina’s, it’s full of a lifetime of accumulation. She uses very little of the ‘stuff’ her place is full with. Start a Declutter Mission. Go through every single room in the house; every cupboard; under the stairs; in the loft; check the basement. Find everything you do not use or no longer want. Grab your camera, then eBay the lot. You could realise thousands of pounds! Selina managed to realise £480 just by selling old clothes she no longer wore, and some gadgets she had laying around.

Get a Second (or 3rd) Job

Sometimes the little things above won’t be enough, even when combined. See if you can get a second job paying part-time hours. This can easily supply an extra £250 to £400 a month and while perhaps not sustainable in the very long term, could help you out of a situation you find yourself in now.

Do A Credit Card Balance Transfer

Selina was struggling with the fact that the card she had the highest balance on (£5,000 in our example) was charging her nearly 15% interest. In credit card terms this isn’t all that bad, but she also knew that if they decided to hike up her rate, she’d sink very quickly. Paying the minimum as she was, would take her over 12 years to pay it off and cost her tens of thousands of pounds in interest.

Selina was unable to get a 0% BT card as her credit rating wouldn’t allow her any more credit. This doesn’t mean you’re going to be in the same boat though, so it’s worth looking at any current offers to see if you can save yourself a packet. Even if a new card doesn’t allow you to transfer the entire balance, any percentage at 0% is better than the rate you’re currently paying.

Remember the cardinal rule of balance transfers: Never, ever, ever spend on the card! Due to the way repayments are calculated, you could pay interest on what you purchase for the entire life of the balance transferred!

Get A Consolidation Loan

I’m not a fan of doing this as unless you’re very strong-willed, you can end up in the same situation you’re in now, only worse. The temptation for some (“my credit card balances are zero! Let’s spend!”), can be too much to resist.

However if you know you can be good and honest to yourself, don’t rule out getting one big loan at a reasonable rate to cover all your existing debt. Shop around for the best rate and be sure there are no early repayment penalties or restrictions on overpaying.

You could do worse than getting a quote from Zopa rather than a bank. The beauty of Zopa is it’s people like me lending you the money, and not some huge, faceless corporation that ultimately doesn’t care much about you or your personal circumstances, just about their shareholders.

Move House

Have you noticed that as we get further down these suggestions, they’re getting more involved and more serious? That’s deliberate. Depending on how short you are each month, depends on how far you’re prepared or need to go.

If you are spending £750 a month on renting a 3 bedroom semi, could you make do with a 1 bedroom flat for £350 instead? This may not be an option depending on your arrangements and situation already, but should be considered if you still have sufficient operating capital to finance a move before things descend further into a debt spiral.

Moving home will impact your credit rating in the shorter term, so if you’re going to apply for a loan or a new credit card for transfer purposes, do it before you move.

Individual Voluntary Arrangement

This is essentially one step away from going bankrupt. From Wikipedia:

“The IVA was established by and is governed by the Insolvency Act 1986 and constitutes a formal repayment proposal presented to a debtor’s creditors via an Insolvency Practitioner. Usually (but not necessarily) the IVA compromises only the claims of unsecured creditors, leaving the rights of secured creditors largely unchanged.

An IVA is a contractual arrangement with creditors and can be as flexible as an individual’s own circumstances; they can therefore be based on capital, income, third party payments or a combination of these.

Creditors take a decision at a creditors’ meeting called to consider the IVA proposal. The return to creditors is often higher than they would receive in bankruptcy. A vote is taken – by value. More than 75% in value of those creditors who vote at the meeting by person or by proxy must agree in order for the arrangement to be approved. If any of those voting are ‘associates’ (usually business associates, friends and family) then a second count is taken and 50% of non-associated creditors must approve it.”

As you can see this is not for the feint of heart,  but it does offer a lesser alternative to actually filing for bankruptcy, which can signal the end of your financial life for a considerable period of time. If your IVA fails then bankruptcy may be your only alternative.

If you’re considering going this route, please read Martin Lewis’ full IVA Guide before taking any steps. Some companies will charge you a fortune, when there are free charity alternatives (see below). Note that an IVA WILL affect your credit rating severely but perhaps not as badly as the alternative: going bankrupt.

It’s Good to Talk

When things get too much, it can be good to talk. There are a wealth of organisations you can talk to about your money worries, including if it is affecting your health. If, despite this post you find you still cannot manage, please speak to these folks – they are experts in their fields and will help you with good solid legal advice and support you through it.

The NHS runs a CreditCrunch helpline on 0300 123 2000 (8am to 10pm every day) and website for those suffering in the current climate.  Trained health professionals will give good, solid, practical advice for how to deal with the health side of being in debt or in the middle of the recession.

National Debtline run a website and also a helpline offering free confidential independent advice on dealing with debt problems. Contact them on 0808 808 4000 (mon-fri 9am to 9pm,   sat 9.30am-1pm).

CCCS is the Consumer Credit Counselling Service, a registered charity offering free, confidential advice and support to anyone who is worried about debt. Visit their website or call them to chat in confidence on 0800 138 1111.

In Closing

The purpose of this article is to prepare you for Step 3 in my 5 Step Plan for debt freedom (aptly called “Dig Yourself Out of Debt in 5 Steps”). In Step 1 we found out exactly what we owe, and seen how much spare cash – if any – we had and tried to increase that amount in this post, Step 2.

Are you spending less than you earn? Have you found any inspiration for cutting your outgoings in this article? Share what worked for you in the comments and remember to check back next Thursday for the next installment in this series.

Continue reading! You’re getting closer to enlightenment. Part 3 is here.