Topic 4 Know how financial difficulties can happen and understand their consequences

How to prevent financial difficulties Plan your finances Pay for essentials Self control Stay in employment

Overspending This means spending more that you earn or have going in to your account You may end up having to incur charges pay interest on what you have borrowed Credit card interest keeps going up and up if you never pay it off

Solutions for Overspending Use an overdraft facility but only on for the short term Ensure the overdraft is authorised Un authorised overdrafts can be extremely expensive A credit card can be used as a solution but short term only – be careful they can be an easy way to overspend if you are not disciplined Make sure you pay more then the minimum payments on your credit cards

Failure to pay You will incur charges D/D or S/O may be rejected Reminder letters also carry a charge If you fail to pay this can affect your credit rating for future lending

What is meant by financial difficulties? When income does not cover expenditure

Causes of financial difficulties Loss of employment Serious illness Starting in full-time education Relationship breakdown Bereavement

If you are finding things a struggle Contact your lenders asap Seek help from the bank and the Citizens’ Advice Bureau Debt Advisory Service Debt Advice Trust Look at FSA Websites

Solutions lenders may be able to offer Lower repayments Lengthen the loan Putting interest payments on hold

If you don’t face your debt things can ‘snowball’ Don’t run away you will be found eventually See a debt advisor they will act in your best interests Legal action can be taken out on you

IVAs Individual voluntary arrangement If you owe your creditors money an advisor will do their best to draw up a suggested plan to get you out of debt Creditors want to get their money back so they will accept a reasonable repayment plan

Bankruptcy A legal procedure that allows an individual to clear their debt Consequences – you will lose some of your treasured possessions You may not be able to apply for certain jobs You may have to wait quite some time to get credit again You are appointed a trustee to deal with your finances a ‘trustee in bankruptcy’ Bankruptcy is on your cred record for 6 years

A debt relief order A form of bankruptcy You need to owe less that 15K Debts in some cases can be written off It only stands for 12 months

The difference between a lender and creditor Lender refers to i.e. mortgage lending Creditors lend money with out security (unsecured) i.e. personal loans, credit cards, overdrafts

County Court Judgements (England) If you owe money you can be taken to court and you may be asked to pay back your debt a notice is placed on your credit record and this can seriously affect your future applications to borrow money – you are classes as an unreliable payer

Repossession An action that a mortgage lender will take against you if they have exhausted every possibility to help you The lender will sell the house and take what is owed to them - you can end up with very little back from sale in some cases absolutely nothing some people don’t even manage to clear their debt to the mortgage provider