Wednesday, 25 May 2011

Reason Why People Get Into Debt

There are numerous reasons why people find themselves struggling to meet payments to their debt. People in debt are normally paying their creditors what they are due but all of a sudden something happens that prevents them from doing this.

Below is a list and explanation of typical reasons for people having a debt problem: 
  •  Redundancy – People are being made redundant at an alarming rate at present due to the financial uncertainty of the current financial climate.
  •  Reduced Hours – There is a lot of people having their hours cut so their company does not have to make people redundant.
  •  Illness – If someone is ill and off for a period of time then they may only get Statutory Sick Pay (SSP) and this will lead to lower income.
  •  Child Birth – If a family have a child then this will be an added allowance on to their expenditure
  •  Death – An added expenditure would happen if there was a death in family.
  • Unemployment – Again, this is the same as being redundant as it will result in a dramatic reduction in the family income.
  • Retiring due to ill-health – This does happen quite often and will have a detrimental effect on household income. For the person involved it will take time to get used to not working and possibly relying on benefits which may mean a change of lifestyle. Failing to adapt to this change of lifestyle could result in a debt problem.
  • Overspending – This is when people use credit to have a lavish lifestyle which they cannot afford. Once all credit facilities have been diminished then they need to seek help. This is a rare scenario however people who are not in debt often assume a person's debt problem is due to overspending. This can be the route cause of the stigma of debt.
  • Gambling, alcohol and drug misuse – When people initially have access to credit and have an underlying problem, such as gambling, alcohol or drug misuse then this can result in people using credit to satisfy their addiction.

As you can see it only needs one of the above circumstances to trigger people from living within their means to having to seek advice. The current economic climate is pessimistic; redundancies, house repossessions and debt advice is due to sky rocket.

If you have a money problem and need debt advice then always use a debt charity. Debt charities are not for profit which means the directors are not receiving any money made by the charity. This ensures the advice is not driven by how much money people can make.

  • When you contact a charity for debt advice there will be a number of options available such as Bankruptcy, IVA (England, Wales & N. Ireland) and the Debt Relief Order (England, Wales & N. Ireland). In Scotland the equivalent to the IVA is called a Protected Trust Deed (PTD). In Scotland there is also the Debt Arrangement Scheme (DAS) which is similar to a Debt Management Plan (DMP) but the DAS provides you with protection if you are a homeowner. In Scotland the legal term for Bankruptcy is called Sequestration. This comes in different variations based on the route to Sequestration. There is Sequestration itself but there is also Low Income Low Asset (LILA) along with the new Certificate of Sequestration which was introduced in November 15 2010.


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