Finance on Earth

There are few less welcome sights than another bill landing on your doormat – especially if you’re already struggling with your money. Bills take up a large proportion of most people’s finances, and given the current financial climate it’s no wonder so many are finding themselves unable to keep up.

The right way to deal with troublesome bills will depend on how serious your problem is. If you’ve missed one or two relatively small payments, catching up might be a simple matter of cutting back on other costs for a while. If you have a more serious problem, though, it may be time to get debt advice from an expert.

Making more room for your bills

Missing one bill isn’t necessarily a huge problem, in terms of catching up. We all face the occasional financial emergency, and sometimes that can affect our ability to keep up with our commitments. The most important thing is that you don’t panic, and instead focus on getting your finances back in order.

If you don’t already have a budget for your finances, now’s the time to start one. It’s surprising how many people struggle simply because their finances aren’t organised. The reason for this is simple: without a budget, it’s easy to spend too much too early, meaning you don’t have enough for your essentials.

It’s also worth looking at where you can cut back on your costs, at least until your bill arrears have been paid off. A few simple sacrifices may be all you need: cutting out those morning coffees on the way to work for a few weeks, perhaps, and/or cutting out takeaways for the month.

Of course, these things won’t be enough to help everyone. If you’ve missed several bills already or if you’re troubled by other debt problems, you may need some extra help.

Getting debt advice

It’s essential that you get debt advice as soon as you realise you have a problem. The sooner you get help, the less time your debt problems will have to grow and the sooner a solution can be found.

There are various debt solutions available to help with all kinds of situations with debt. By making sure your unsecured debt repayments don’t take up too much of your monthly income, the right debt solution could help you to catch up on your bills and stay on top of all your financial commitments.

Take our free debt test to find out whether one of our debt solutions could help you.

Many people who take out an unsecured loan don’t realise that they may be risking losing their house if they fail to maintain the repayments.  It does focus the mind when you consider that a foreign holiday or poor debt management may put your house at risk.  So how can this happen and what measures can you take to prevent this.

What is an unsecured loan?

An unsecured loan is a loan that is not guaranteed by a pledge of security or collateral by a borrower; in other words, it does not identify specific assets – property etc. – to which a lender is entitled if a borrower defaults on a loan. Unsecured loans are a very popular and readily available form of borrowing in the United Kingdom; 35% of British consumers regularly use some form of unsecured debt – which includes not only loans but also credit cards and overdrafts – and 10% actually use unsecured loans to pay off other forms of debt. Theoretically borrowers can rest safe in the knowledge that should they fall into arrears or default on an unsecured loan, nothing other than their credit rating is at risk. However, there exists an obscure, but perfectly legal, instrument called a “Charging Order” which lenders can use to effectively turn unsecured debt into secured debt.

What is a Charging Order?

Currently if you fail to keep up repayments on an unsecured loan, a lender is entitled to take you to court in an effort to recover the money you owe. If, after a hearing, the court finds in favour of the lender, you may be issued with an order, known as a CCJ or “County Court Judgement”, which requires you to pay your debt and stipulates how you should repay it. Once a lender has obtained a CCJ against you, however, they can also apply for a Charging Order. In fact, a change in the law is anticipated, whereby a creditor would be able to apply for a Charging Order without first obtaining a CCJ.
A Charging Order is a legal order placed on your home or land so that when you sell it you are legally obliged to pay off your debt in full before you can receive any proceeds from the sale. This can be serious enough if your creditor is prepared to wait until you sell your property of your own volition – restrictions on the sale or remortgaging of the property will be lodged with the Land Registry – but it can be worse still. If a creditor acquires a Charging Order and they are not prepared to wait for their money they can apply for a further order known as an “Order of Sale”.

Order of Sale -Losing your house

Orders of Sales are rarely granted, especially if your debt is small but, potentially, you could be forced to sell your home immediately to repay your debt. This is fundamentally very similar to the process of repossession (if you default on your mortgage repayments) so despite what lenders may tell you about the benefits of unsecured loans – for which they are also happy to charge you higher interest rates – if the worst comes to the worst there is little to choose between unsecured and secured debt.

Efficient Debt Management

Control is the key to good debt management.   By control I mean understanding where your money is going and balance this with the amount your are earning.   It may seem ludicrous that your home can be at risk – even theoretically – as the result of arrears or default on small loan or credit card balances, but the number of Charging Orders granted has increased by 1,000% since the turn of the century. As Britain officially enters recession and unemployment rises, more and more people are likely to run into problems with unsecured debt and lenders are becoming increasingly willing to resort to Charging Orders.

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If you want to run your own business in the UK you have two main methods – either be a sole trader or set up a limited company (OK there is a third method by starting a partnership LLP scheme but we’ll stick with the main two for this article).

As a sole trader you are effectively self employed and the strict rules in the UK mean you need to tell HMRC of this change to your income within three months of starting your business otherwise they will fine you (the initial fine is £100 and just keeps growing – the system of fines is a few years old now but almost everything with a deadline date has a fine and some deadlines you won’t know about unless you read up on everything).

As a sole trader this means you are personally liable for anything that goes wrong. Although insurance may cover some of the losses (for example, if you get sued for providing wrong information) courts and others can come after your personal assets. The positives are that you don’t have all the red tape that owning a company entails.

Setting up a private limited company in the UK is very easy and can be done online if you want an “off the shelf” name then company registration can be done in a matter of a few hours using online registration agents. All agents are policed by companies house and are integrated with their own system. Once you have chosen the name of the company then the agent will send all the relevant forms to your via email or for a small additional fee hard copies to your business address.

Once you have a trading company then you will probably be the director and with that comes certain responsibilities. Of course losses are limited to the company and not you personally but each year you will have to file a set of accounts at companies house, complete the annual return and other required paperwork – normally this is undertaken by an accountant each year as they know exactly what to do and file things on time and properly.

Whether you are a sole trader or limited company if your turnover is going to be over a certain threshold each year (currently £67,000) then you’ll also have to register for VAT – then of course if you take staff on there are additional regulations with regards to employing people and paying income tax and national insurance.
But setting up a private limited company in the UK is fast and cheap (about £40) but there are responsibilities that you should be aware of before you go down this route.