No-one likes to be in debt but is there a point when Scots should begin worrying about their debts and do something about it?
While we all rack-up debt at some point, usually on credit cards or a bank overdraft, this can spiral and get out of hand to become ‘bad’ debt. This is a debt that you may be struggling to repay.
If you’re wondering whether your debt situation is an issue then you need to know more about the debts you have.
Firstly, secured debt can be an issue since it is secured against collateral so if you stop the repayments you may face losing the goods.
For example, if you fail to repay a mortgage, the bank or building society can then force you to sell your home.
And even with the non-payment of a car loan, the lender can take it from you. This is an issue for those who have so-called logbook loans which is a form of secured debt since the lender is providing money against the vehicle’s value.
It’s because these secured debts are linked to items that it’s important to repay them first.
The next form of debt is unsecured debt which are riskier for lenders since there’s no assured way of them getting their money back. The interest rates are also much higher as a result.
For example, unsecured debt will include things like most bank loans, credit and store cards as well as payday loans.
According to experts, credit card debt is not a big problem for many people since around 80% of them will pay off their full balance at the month-end.
However, for those who do not repay the full balance means the face high interest rates, typically around 20%.
Should we lose our source of income, plus having other debts, means our unsecured debts can quickly run out of control.
There’s also the issue of priority debt since the different debts will carry different sanctions so you must then prioritise them.
As an example, the non-payment of council tax can be severe and a court action could lead to property being removed from your home to pay the bill. You could even end up in prison.
Also, the non-payment of utilities, for example the gas, electricity and water, could see the utility provider cutting off your energy supply. These debts are also considered to be a priority.
Finally, there’s also the issue of student debt and while the individual amounts can sound huge they don’t have to be repaid unless the student is earning more than £21,000, and this is rising to £25,000.
The debt is also written off after 30 years and most students never fully repay what they owe.
So, when should people in Scotland worry about their debts.
Three debt warning signs for people in Scotland
Debt experts say there are three debt warning signs for people in Scotland to consider that they have a problem:
- You’ve had to cut back on food expenditure
- There’s no money to save at the month-end
- You can only afford the minimum repayment on credit cards
Also, a debt charity would conclude that someone with over-indebtedness is someone who is struggling to meet their monthly bills or who misses more than two bill payments within six months.
Apparently, nearly 60% of the UK population, that’s around 8.2 million adults, are consider to have over-indebtedness.
It’s at this point that you really should consider seeking professional advice and that’s where the friendly team at Scotland’s Trust Deed can help.
For people living in Scotland, there are three alternatives to solving indebtedness and they are: a trust deed, a debt arrangement scheme and a debt management plan.
There’s also the option of sequestration, which is better known as bankruptcy, but this is a serious undertaking and needs to be carefully considered.
For more help and advice for people living in debt in Scotland then speak with the Scotland’s Trust Deed team in confidence.