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When personal debt issues threaten to overwhelm you, it can be a frightening and stressful experience. The complexities of the situation are a worry, of course, but this anxiety is compounded by the stigma that surrounds the subject of personal debt. It can be very frustrating to realise that, on the one hand, we are constantly encouraged to spend in support of the economy while, on the other, we are judged negatively in many ways for accumulating debt. 
 
This type of stigma is particularly damaging because no two financial situations are the same. What may be a manageable level of personal debt for one household could be entirely too much for another. The negative connotations associated with the idea of debt cause further problems, however, in that they can prevent people in debt from seeking the right kind of advice. The myths surrounding the subject of personal debt can deter people from taking the steps that can help them identify the right solution for their specific situation. 
 
Fact versus fiction 
 
Everything can feel very confused when bills start piling up, but it’s important to know the facts about personal debt, rather than allow the myths to create more fear and stress. There are many myths around personal debt but unpicking the most common can be very helpful. 
 
‘Personal debt is the result of reckless overspending and financial mismanagement’ 
 
Since no two financial situations are ever the same, it is certainly the case that some instances of personal debt will be the result of irresponsible spending. However, for the majority of people, unmanageable personal debt results from an unforeseen change in circumstances. Adults and families in the U.K live in a broad range of economic conditions. Some have an income that means they live day-to-day, or week-to-week, while others may have managed to create a savings ‘buffer’ that equates to a few months’ worth of income. The fact is that anybody on that spectrum can be negatively impacted by a change in circumstances – whether that is a loss of employment, a reduction in benefits, an increase in taxes, or a health or family crisis. The smaller the savings ‘buffer, the more acutely that negative impact will be felt, and there are a multitude of personal and socio-economic reasons for a lack of savings. Problems with personal debt should therefore never be a source of shame. 
 
'Personal debt is bad’ 
 
We live in a capitalist society, which means that not all debt is ‘bad.’ For example, taking on a mortgage is considered a ‘good debt,’ provided you are realistically able to afford the repayments. This is because a mortgage represents a committed investment in an asset and, as such, it can contribute to improving your credit score. This strengthens your position in terms of securing credit in the future. This highlights the ease with which we can fall into the personal debt trap. The economy and credit system rewards careful debt management, and this is essentially an exercise in risk management. All credit incurs risk because your financial circumstances can always change. The management element lies in making informed judgements about how much risk you can realistically take on, without it becoming a problem. As the Coronavirus pandemic demonstrated, however, we cannot plan for every eventuality. 
 
‘Bankruptcy means I don’t have to pay off my debts’ 
 
In terms of debt management, bankruptcy is a last resort because it carries with it very serious, long-lasting implications. Firstly, the bankruptcy process is not free. The administrative cost of bankruptcy in England and Wales is over £600. Secondly, while most types of debt are included in bankruptcy and are eventually written off in the process, some types of debt are not. These include child maintenance arrears, TV licence arrears and criminal fines. Thirdly, during the bankruptcy process, assets that you own may be sold to meet some of the outstanding debt. These assets may include your home or vehicle. Finally, bankruptcy will remain on your credit history for six years and may affect your credit score beyond that timeframe. It may also limit employment opportunities, excluding you from the possibility of being hired in certain industries. 
 
‘An Individual Voluntary Arrangement (IVA) can affect the value of my property’ 
 
An IVA is a formal agreement between you and your creditors, supervised by a licensed Insolvency Practitioner, which enables you to pay off your debts over an agreed period of time using surplus income. An IVA usually lasts between five and six years and, during this time, a valuation of your property is likely to be carried out and its value may be reduced by 15 per cent. If the valuation reveals equity of £5,000 or more, you are likely to be expected to re-mortgage your property, or extend the IVA in lieu of equity. 
 
‘The terms of an IVA are inflexible’ 
 
Although an Individual Voluntary Arrangement is a legally binding agreement that is designed to resolve your debt issues, the payment terms can be renegotiated, if required. The initiation of the IVA occurs when 75 per cent or more of your creditors agree to the terms proposed in the agreement. Should your circumstances change during the term of the IVA, amendments to the payment terms can be proposed through the supervising licensed Insolvency Practitioner. Once again, if the creditors vote to accept the adjusted terms, the IVA can be altered. This is an important feature of this process because it allows for flexibility in the event of income loss or other personal issues. 
 
Clarity from experts 
 
When you find yourself overwhelmed by personal debt issues – trapped in an unending cycle of overdue bills – it is difficult to separate fact from fiction; to find the truth amid the stigmatising myths. This is why it is essential to seek clarity from experts. The Smith & Barnes Insolvency team provides affordable, non-judgemental advice to anyone experiencing financial difficulty. With a quick and efficient service, these highly experienced professionals can alleviate the stress and anxiety associated with personal debt by tailoring an effective, straightforward solution specifically for you. 
 
Call Smith & Barnes Insolvency today for your free consultation. 
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