Guest blog: Go back to basics

08 November 2024

In this guest blog for Talk Money Week 2024, Lisa Ashworth, Client Services Manager at Horsfields provides practical steps to assess your income and expenditure, and explores the different formal and informal options for dealing with financial distress.

As many people are faced with the cost-of-living crisis one thing that is apparent is the number of ‘options’ available to individuals to tackle their indebtedness. Searching the internet, there is lots of advice on how to ‘get out of debt’ but if you are to do one thing, it should be to consistently assess your income and expenditure before you feel matters have spiralled out of control and you are facing financial distress.

Studies have shown that when you write down your goals, you have more chance at succeeding. Why not adopt this same approach and write down your income and expenditure to fully understand and acknowledge your financial circumstances. By being honest with your expenditure, making priorities and sticking to your goals, this will enhance financial wellbeing.

In a world where most things are now instantaneous and credit is widely available, it’s easy to fall into a trap of ‘borrowing from Peter to pay Paul’. We would encourage anyone to go back to basics, evaluate the areas of spending, reduce your expenditure, and potentially increase your income.

Income

Every year there are billions of unclaimed benefits. Ensure you are claiming what you’re entitled to, including Council Tax discounts where applicable.

Utilities

Are you getting the best deals, or can you switch to another provider and save money? Ensure to automate these payments as it will help budgeting, remove the hassle of manual payments and avoiding late payment fees.

Housekeeping

Take a view on branded products and consider a meal plan,.This will reduce impulse buys and help you to utilise the products already in your cupboards. Where possible also consider bulk buying certain products which you know will always get used and provides a long-term saving.

Mobile/Broadband

Is a SIM-only deal a viable option? Many mobile phone companies are now partnered with broadband and offer competitive deals and offers to access free products, some of which you may already be paying for.

Emergencies

Ensure you plan for emergencies. A flat trye, broken kettle or new school shoes can unpick months of hard work so ensure to keep something to one side. If you have a surplus at the end of the month, be sure to add it to your emergency fund or pay a little extra off your creditors.

What next?

If the review of your financial circumstances is worse than you thought, seek help. Debt forgiveness options are available through the use of Debt Management Plans, Time to Pay Arrangements via HMRC/Local Government and on a more formal basis entering into an Individual Voluntary Arrangement (IVA), Debt Relief Order (DRO), or a Bankruptcy.

Breathing Space applications are possible to allow a reasonable period of time to identify and consider the options that might be most appropriate. This should facilitate financial rehabilitation over a sensible time period but it is not a “one size fits all” solution.

DRO applications can be processed through an approved intermediary. The Government has recently made changes to make it easier to access for people struggling with problem debt.

The duration for an IVA ordinarily lasts up to five years with the individual making contributions out of income to enable a percentage return on the debt. In the meantime, secured debts/mortgages should continue to be paid with the possibility of equity release at the end of year five if funders will allow as an exit route from the IVA. Therefore, no property disposal will arise and no threat of possession proceedings that might arise in Bankruptcy.

The starting point must be a detailed financial review and budget of income & expenditure going forward, so that both the individual and their creditors (where an Instalment Plan Arrangement or Monthly Contributions out of Income in an IVA are being considered) can then judge which is the best route of travel.

Unsecured Creditors, in the case of an IVA, will have a vote to approve the offer put forward. So long as the return to creditors shows a better outcome than could be achieved in a Bankruptcy it is likely that that the offer/proposal will accepted allowing the individual and their creditors to face the future with certainty. It all depends on whether the debtor can make good on the offer.

However, any failure/breach may have some adverse consequences including potentially a petition for bankruptcy so the lifeline that can be achieved through this procedure should not be taken lightly and choosing the right option will require careful planning with the assistance of professional advice and guidance.

Lisa Ashworth is Client Services Manager at Horsfields and has 24 years of experience working with Local Authorities, specialising in providing viable solutions for debt recovery.

https://www.horsfields.com/