Five Ways to Pay off your Debts

Five Ways to Pay off your Debts

As we begin a new year, and set new resolutions for the year, many will make their target for 2021 to pay down their debts.
We, therefore, look at five ways that you can pay down your debt.

The Snow Ball Approach

The Snowball approach is a simple one. It involves you paying down the debts that you are paying most for, first. The idea is to reduce how much your debts are costing you each month.

Normally, this will mean paying off the ones with the highest rates of interest first, but not always.

Sometimes, even debts with lower levels of interest can cost you more each month, if the balance is higher.

You still must pay all your ongoing liabilities as normal, such as your gas, electricity, council tax, rent, or mortgage.

You must also make sure you pay the minimum amounts towards your other debts each month, before you pay everything else to your most expensive debt.

As you pay off each debt, you move onto the next one, until you have none left.

The Money and Balance Transfer Approach

The Money and Balance Transfer Approach is a form of refinancing and involves using credit cards, so is only likely to be possible if your credit rating is good enough to successfully apply for a credit card. Alternatively, you may have one that you have not used.

A Balance Transfer is when you transfer one credit card balance over to another credit card, to take advantage of an interest free period.

A Money Transfer is similar but involves transferring cash from a Credit Card over to another account, such as an overdraft and using that to pay off the balance on the other account.

Again this is with a view to taking advantage of an interest free period.

The two things you must watch for is there will normally be a transfer fee, that will be a percentage of the money you borrow. You just need to make sure that will not be more than you will pay in interest if you do not transfer the money or balance. You also must make sure you use the interest free period to reduce your debt and stop using credit.

The Consolidation Approach

The next approach is a common one, and that is to consolidate your debts, so you make only one payment each month.

This involves taking out a loan to repay all your other debts. You then just have one debt to pay each month.

The problem with this approach is you can end up owing more, even if you do not borrow any more than you owe. The problem is you will have to pay the interest on the loan, which means you will likely have to repay more than you originally borrowed.

Also, the danger is if you keep borrowing from other sources of credit, such as credit cards and overdrafts, your debts can quickly become a problem again.

The consolidation Loan approach can help you deal with your debts, but it is also the one that is most likely to fail if you do not address the underlying reasons why you were using credit in the first place.

The Incremental Approach

The Incremental Approach is like the Snowball Approach, but in reverse. The idea is also to achieve the same outcome as the Consolidation Approach, only having one debt to pay, then none.

The way the Incremental Approach works is you pay off your smallest debts first, then when that is paid off, move onto the next one. This may be more costly than the Snowball Approach, but you will reduce the number of debts you have sooner, which can sometimes make it easier for people to manage their monthly payments.

You still must pay all your ongoing liabilities and maintain minimum payments to all your other debts.

The Formal Debt Solution Approach

The Final option is to seek advice from an advice agency and use a formal debt solution.

This can mean the Debt Arrangement Scheme, a Protected Trust Deed, or a Sequestration, which is the name for Bankruptcy in Scotland.

Eviction Ban: How to use it to your Benefit

Eviction Ban: How to use it to your Benefit

The Scottish Government’s decision to extend its eviction and repossession ban has thrown a lifeline to many Scots and their families.

However, although the Scottish Government has said they have an option of extending the ban beyond the 31st March 2021, people should not assume they will and should use this time to take steps to help themselves.

In this post we look at what tenants and homeowners can do to help themselves. 

Episode Two: The Scottish Tenancy Hardship Loan Fund

Get Advice

The most important thing you can do if you have mortgage or rent or mortgage arrears is get advice.

The second most important thing you can do is speak to your Landlord or Mortgage providers. They may be able to help you.

In terms of Landlords, it is in their interest to help you. Currently the law states that if they want to evict you, they must first give you six month notice before they even initiate legal action. Even if they have done that and obtained an order to evict you, the eviction ban means they currently cannot remove you from the property. The most effective way for them to get their money, therefore, is to work with you.

Also, Mortgage Providers have been told by they UK Financial Regulator, the Financial Conduct Authority, that they must work with home owners and where it is required give them support.

If you don’t feel able to do this or you need help claiming benefits, then contacting your local advice agency is important as they can assist you.

Maximise your Income

If you have been affected by the Covid 19 Crisis fiancially, then you may be entitled to financial assistance from the UK Government.

This may come in the form of the UK Furlough Scheme (speak to your employer) or the Self-Employed Income Support Scheme 

Also you may be entitled to additional social security benefits such as Universal Credit and help with your housing costs.

Unfortunately, you cannot get help with your mortgage through Universal Credit, but there is some support in the form of a secured loan available through the UK Government’s Support for Mortgage Interest Scheme (although you do need to wait 39 weeks before that support becomes available).

The most important thing you can, therefore, is look at how you can maximise your income. 

One way of doing this, is by completing a full benefit check for yourself.

Discretionary Housing Payment

If you are a tenant and you are having difficulty paying your rent, you may be entitled to a Discretionary Housing Payment.

A Discretionary Housing Payment is a payment that your Local Authority can pay to you or your Landlord to help you with your rent.

These payments can be in addition to other payments to help you with your housing costs, such as through Universal Credit.

They cannot be use to pay rent arrears, however, where you cannot pay your full rent because Universal Credit won’t cover the full cost, or you have been affected by the Benefit Cap, or your income has dropped, DHPs can be awarded to make up the difference.

They can also be backdated, so they may reduce your rent arrears.

If you are interested in applying for a Discretionary Housing Payment, you should contact your Local Authority.

What is Changing with the Debt Arrangement Scheme

Scottish Welfare Fund

All of Scotland’s Local Authorities can provide people with non-repayable grants through the Scottish Welfare Fund.

The types of grants that are available are Crisis Grants and Community Care Grants.

Non of these can be awarded to help pay rent or mortgage costs, however, they can be provided for other reasons if you are struggling financially and this may help you with other costs.

Crisis Grants can be paid to help you with your day to day living costs if you are experiencing any financial hardship and are intended to pay for essential living costs such as food and ensuring you home is heated.

Community Care Grants can be paid to cover the cost of larger items that need replaced, and are essential, such as beds, flooring, curtains and cookers.

If you want to apply to the Scottish Welfare Fund, you should contact your local authority.

rent arrears

Tenancy Support Hardship Fund

The Tenancy Support Hardship Fund should be the last option you should explore if you have rent arrears.

This is because it means borrowing from the Scottish Government a loan to pay your rent arrears, that you then must repay.

However, the Loan is interest free and does not need to be repaid immediately. Once you have borrowed from it, you don’t need to make any payments for the six months.

After that you have up to five years to repay the loan.

In addition to that if you are financially struggling to repay the loan, you cannot be evicted, unlike if you don’t repay your rent.

The Tenancy Support Hardship Fund can only cover rent arrears that have been accrued since the 1st of January 2020.

If you want to apply to the Tenancy Support Hardship Fund, you do online via a Scottish Government Webpage.

Once the sequestration is awarded by the Accountant in Bankruptcy, or by the Court (where a creditor makes you bankrupt), the Trustee notifies the creditor and the wage arrestment should cease.

Rent Arrears

Dealing with Rent Arrears

If you are experiencing difficulty with your rent arrears, our page on Rent Arrears and how to deal with them will provide you with more information.

Dealing with Mortgage Arrears

Our page on Mortgage Arrears also explains the process that mortgage providers must use when you get into mortgage arrears and tell you what your rights are. For more information, click below.