While we encourage good financial habits of spending less than you earn and budgeting for important expenses here at The Savvy Scot, we also understand that you can’t go back in time and fix the situation you are already in, and sometimes life happens and you find yourself with a ton of debt and little options to pay it off.
Paying off debt should always be your priority, even before saving, since often you have a double digit interest rate on a credit card, and close to zero interest on your savings. So you will save more money paying off your credit cards and loans than squirreling away your cash. And worst case scenario, you can put expenses back on the card if you have another tough month.
If you are a Scottish resident and unable to pay your debt, you can contact companies such as Trust Deed Scotland in order to discuss payoff options. A trust deed allows you to consolidate your debt, so instead of making several payments to all of your creditors, you make only one, which is usually lower, and you have only one interest rate. If you manage to honour all the payments in your payment plan, a trust deed is a way to avoid bankruptcy.
A trust deed helps you find a way to repay your unsecured debts. In general, that means everything except your mortgage. Credit cards, home improvement loans, holiday or wedding loans, etc.
You come to an agreement to repay the debt in one monthly payment, usually over a term of four years, under a trust deed instead or paying each loan separately.
One advantage is you only have that one payment to make, and are less likely to forget it or pay late fees, than if you had several payments.
Once you are approved for the trust deed, all the interest on your debts will be frozen, meaning no more accrued cost to what you owe. The amount you will repay every month will depend on what you can afford, based on how much you earn and your current monthly expenses. It can save you thousands of pounds compared to keeping up with the standard payments.
This will of course affect your credit rating, which is likely to have been damaged anyway, as a result of you accumulating too much debt and missing payments. You can start rebuilding your credit once you are debt free and ready to move on.
Having a trust deed will also prevent you from going deeper into debt, for example you won’t be able to apply for a new line of credit or a credit card. So while it will take a few years for you to go back to normal, at least you are making a step in the right direction, instead of keeping irregular payments and struggling more as interest accrues.
Before you decide on bankruptcy, debt consolidation or a trust deed, you should seek independent counsel. It is a decision that will affect you for a long time and you want to make sure you understand everything before deciding on one option or the other.