Beyond doubt, the stress involved in being a debtor has few contemporaries in today’s modern world. As debt normally follows some other tragic event in your life: like loosing a job, unintentional pregnancy, a spouse leaving the family home, and of course any number of addictions, the ability to think straight is almost impossible.

In this situation the first thing to worry about is YOU, not your creditors. After all, if you lack the will power, energy and your worldly goods to rebuild yourself and your life you will never be of any use to anyone, let alone your creditors.

You have to rationalize (you know just like companies do when they fire you because they have trained a monkey to do your job: it may lack social skills, but hey! Who cares about customer service)?

Why do I say "rationalize"? The dictionary says, "…make more efficient by reorganizing it (cash) to reduce or eliminate waste". This means that you have to look at the ‘cause and effect’ of your actions: if you stop paying the paper bill – you do not get any papers delivered: go and collect the paper yourself to stop the delivery charge. It is easy to cut out ‘waste’ by stopping every regular expense you have in order to pay your creditors, but drastic action can increase your financial worries. I have listed a few categories (you will know more) where spending money helps!

Extended Warranty

You have a washing machine that is; say, two years old and you have lots of kids. You have just received the manufacturers extended warranty at £120 per year, payable at £10 per month. This is an expense, when in debt, that at first you decide not pay. But, if that machine broke down you would likely have to pay a bill in excess of any amount you had paid in warranty protection to date:

     Month 1. Paid £10 = £10
     Month 2. Paid £10 = £20
     Month 3. Paid £10 = £30 …and so on
     Month 4. Repair needed at a cost of £100… the cost to you £30

In fact, the cynics amongst us (yours truly included) claim to have never seen a bill under £100 for ANY washing machine repair.

This type of thinking is particularly effective if you have short term financial problems, say 3 – 12 months: think of it as a £10 monthly bet (not recommended for debtor-gamblers) with a pay-off that covers an essential service (clean clothes). Winning this bet will be a massive relief if it happens.

Household Insurance

Paying a monthly household insurance premium is a must. It would be totally unacceptable to stop such insurance to help pay your creditors. Most ‘established’ lenders will accept an insurance premium as a ‘preferential’ payment, and quite right too.

Where you would question paying an extended warranty is with, say, a hi-fi system. Paying £5 - £10 a month to cover a non-essential item such as a hi-fi is a choice thing. If your hi-fi means more to you than your washing machine, then look after it. The argument in favour of paying a hi-fi warranty is to maintain good order of an expensive item to ensure that when your financial problems are over you do not need to spend lots of money on a new hi-fi: oh yes, and it gives you pleasure.

Your Telephone

A luxury? ‘No’, twenty years ago having a telephone and an outstanding creditor was a 'no no'. By having a telephone you were clearly showing your creditors that you had the ability to pay them more than you actually were.

The telephone today is not a status thing; it’s about living in the 21st century. The telephone brings your family and friends (not a BT advert) into your house any time of day or night. Being in debt and isolated is a dangerous downhill cocktail. It would be helpful to get a telephone installed if you have never had a telephone in your house before. You would be more likely, for instance, to get a reasonable job and less likely to withdraw from potential help. And, oddly enough, more likely to avoid court action for your debts. Why?

Every lender has a dedicated department that chases late payment. The preferred contact is by telephone. This ensures the lender has contact with you, they can call you if you do not maintain agreements, they can call you to attempt raising payment arrangements, and of course they can exert more pressure by talking to you than sending a letter that you may not even open (if you know it is from a creditor).

Your Car

A car is not that dissimilar to a telephone in respect of balancing the benefits to both debtor and creditor. The main example is using a car to get to work, only beaten by needing a car ‘to’ work, such as parcel delivery. Being that your car is one of your major assets you need to maintain its condition by regular servicing. Some lenders will target your car for a forced sale to cover a debt - to avoid this you must respond to any court action, maintain any payment arrangements and always have a good reason to keep the car if you do have to convince a court.

Summary

As with our previous articles you must balance the needs of the creditor/s and yourself. This article is not suggesting that you set yourself up with all the comforts of life to the detriment of your creditors. This article should form part of a concerted plan to reduce your debt, and the stress attached to this time in your life.

Paying for a service or maintenance (in the last case car maintenance) can be a solution to avoiding long-term debt if those services allow you to work, look for work, be healthy and socialise with those closest to you. See if you can ‘rationalize’ your current budget and see how many you would change. When talking to your creditors remind them that you need to carry on living (not existing) and that there are a number of rational decisions to be made by YOU.

Many thanks to Colin Duguid of Debt 24.com who is taking the time to provide this information as a service to homeworkers.