I mentioned in my last blog that there were (in effect) 3 scenarios you might find yourself in once you have dealt with the tough issue of recognising you have a debt problem and dealing with it:

1. ~ your wage covers all of your expenses and liabilities if you are careful
   
2. ~ your expenses and liabilities exceed you monthly income, but some budgeting will sort things out
   
3. ~ your expenses and liabilities exceed you monthly income by a large margin.
   

In this blog I am going to deal with scenario 3. I said in my last blog that in this scenario you might have to accept that a very poor credit rating is on its way and learn to live with it.~

Think about this for a bit. Taking a hit on your credit rating is not, in fact, that important, because you now have so much debt that you HAVE to stop obtaining any more debt unless there are clear reasons to take it on. For example, you may get a new job with more money but need a car to get to work – there is a clear justification on that one that is difficult to argue against and you might just want to have the credit secured on the car from a company such as Cash Drive ~ it can make perfect sense.

However, in general the rule is: NO MORE DEBT! You are going to stop using bank overdrafts, credit cards, store cards, store accounts and loans, so the fact that your credit rating will be in fact zero - will probably work in your advantage.

I am going to give you some advice now that normally would not be put in writing and which you should take advisedly ~ that is apply with caution.

If you DO NOT have credit facilities you DO need cash. That is why I suggested in my last blog that you should set up a new bank account and have all of your money paid in to and stop your direct debits and standing orders. Once you have done these things, you are now in control of your own money again. The bank cannot apply excessive charges for bounced direct debits if you have none. You can now choose who you pay and when you pay ~ and how much.

Now you can prioritise your payments. The ones that come to the top of the list are the ones that can inflict the most pain the quickest and they are in rough order:

• ~ Council tax (you can go to prison for not paying)
  
• ~ Mortgage (it will make sense to hang to your house as long as possible)
  
• ~ Utilities (gas, electric, water - dont want to lose these)
  
• ~ Any secured loans (especially on the house)
  
• ~ TV License (you can get a £1000 fine for not paying this)
  
• ~ Any hire purchases (where important purchases can be taken back e.g. furniture)
  
• ~ Credit cards & other unsecured debt
  

Obviously each persons circumstances will vary, but the above list is broadly in order.

Now comes the tricky bit. If you have habitually no cash then just stop paying for a month or two. Yes all hell will break loose, yes your letter box may seize up from over work and yes your telephone will never be back on the hook and it will be painful and there are risks associated with this advice. However, not paying for a month at least will allow you to start to build up a cash nest egg in your new bank account to deal with the credit free world you are about to enter.

The reason you will be told this is bad advice is because you will incur charges for late or no payment and your overall debt will actually grow for a while, which is obviously not good. However, the road we are about to go down will involve freezing the credit accounts which will make them unusable and so you need to have some cash ~ just to live.

The next thing to do is to get in touch with each creditor to let them know you are in trouble and negotiate a solution. This sounds a bit scary, but here is a ray of sunshine. When you cannot pay the creditors, they will be hard. They will send you hard letter warnings of solicitor action, credit rating problems etc. When they call you they will be even harder. They twist your words and hit you hardest when you are at your weakest. However, once you get a grip and come back to them with an honest appraisal of your situation and a way forward, you will (eventually) get a sympathetic hearing and co-operation to assist with solving the problem ~ providing you are serious about doing so.

More of this later.

Further Reading:

[http://www.cash-drive.co.uk]

[http://www.cars-and-money.co.uk]