Post Christmas Debt – How to Cope

Each year around this time the Isle of Man Office of Fair Trading (OFT) sees an influx of new clients for its Debt Counselling Service. It’s easy to understand why; many of us get carried away when Christmas spending. But so often the excitement of Christmas gives way to the desperation of debt. What can you do to help yourself?

Firstly, don't ignore it

If you are facing financial difficulty then the vital thing is to talk to someone. The worst thing you can do is let it run on and ignore the problem; the longer you leave the problem the bigger and more daunting it will become, the more interest and other charges you will incur and the more likely it is that you could face legal action. As hard as it may seem, the first thing you must do is talk to the people you owe money to - don't just stop payments without explaining why. They can sometimes be more understanding than you'd expect.

Prioritise

The next thing to do is to work out which debts are your priorities - mortgage, rent, tax, child maintenance, utilities - and pay them first. Don't fall into the trap of paying whoever shouts loudest first. Work out a budget that covers all your income and essential out goings. Only offer to pay off debts at a rate you can keep up - it is easy to be panicked into offering more than you can afford.

Beware of a quick fix

A classic response to debt problems is to borrow more money to pay off the debt. This is rarely the best option. If you are having financial problems, you should at least investigate ways to deal with your difficulties without borrowing more. Be particularly wary of companies that offer to lend you money to 'solve' your debt problems, especially if they want you to take out a second mortgage or a high interest loan.

Get advice

The OFT has a free Debt Counselling Service with fully trained staff who will discuss your problems with you, totally confidentially, guide you in sorting them out and liaise with your creditors to organise your debt repayments.

What happens if I am threatened with legal action?

First of all, don't panic. The courts try hard to distinguish between those people who can't pay and those who won't pay. If you are facing genuine difficulty then you will normally be allowed to repay your debts at a rate that you can afford. Telephone the OFT on 686510 or contact your MHK for advice.

The debts will still have to be repaid but the important thing is that you tell the court about your situation.

But what about next year?

Having experienced problems last year how do you prevent the same thing happening in December 2012? The key is budgeting and maybe starting to save a little each month towards next Christmas. Work out where you spent money over Christmas 2011 and decide if there are any economies you can make for the next one (it’s estimated that on average each person spends £20 on presents for relatives and friends who don’t want them). Decide what your budget for 2012 should be (add on 10% for things you’ve forgotten), divide that by the number of months left before December and start saving that amount each month. That way you should have the money when you need it.

The OFT has produced a simple chart giving some information on possible savings plans. You can view it at www.gov.im/oft or telephone 686510 to obtain a copy.

Any other tips?

If your difficulties are caused by a reduction in income, check whether you are entitled to any help through social security benefits. Many people miss out on additional income just because they don't check their entitlement when their circumstances change. Then, make a list of all of your spending and look critically through it to see where you can make savings. The OFT’s website http://www.gov.im/oft/money/debt_counselling.xml has a self-help booklet that gives you more information and a budget sheet to work with as well as a series of interactive tools which you can use to help you manage your debts.

But remember this does not mean you are on your own; the OFT is still here to help if you need more advice or you need help writing a letter or filling in a court form. Please call 686510 to make an appointment.

Notes

Each January the Isle of Man Office of Fair Trading sees an increase in the number of people approaching them for debt counselling help. The Service works with their clients to enable them to prioritise their debts and make affordable repayments to their creditors. During 2011 the Service helped 160 clients manage a total debt of £3,185,755.57. This is an average debt of £19,911 per client. Credit card debt accounted for almost 42% of the total owed during this period with almost 54% of the clients seen sighting poor budgeting as the reason for their debts. Compiling a realistic household budget is therefore important for anyone trying to gain and stay in control of their finances.