At its most basic, debt is the money – or cash equivalent of goods or services – owed by a person or organisation to other people or organisations. For most people, debt will be held as a result of accessing consumer credit; that is one or more of the products that allow consumers to borrow money such as loans, credit cards, mortgages, store cards, payday loans and overdrafts.
Nearly everyone will take on debt at some point in their lives, and the majority will have no difficulty in repaying what they owe. An increasing number of people, however, have debt problems. These problems usually involve the borrower being unable to keep up regular debt repayments; this can often result in debt increasing as missed payment charges are added to the existing debt.
The causes of debt problems are numerous, but mainly fall into two categories: either the debtor’s income decreases, meaning that previously affordable repayments suddenly become unaffordable, or the debtor has been lent a sum of money that they will only ever find difficult to repay (prime examples of this are payday loans, which can have interest rates of thousands of percent).
Whatever the cause, dealing with debt in this way can be very difficult; many people in such trouble resort to ever riskier and unaffordable forms of debt to keep up repayments, which some of the more unscrupulous lenders (pawnbrokers, money lenders and payday loan companies rather than the more traditional banks and building societies) are only too happy to provide.
The end result can be that the borrower defaults on their debt, in which case the debt may be passed to a debt collection agency, who will attempt to recover the debt for their client (the lender). This debt recovery can take a number of forms, but at its most extreme can mean the seizing of the assets of the debtor – including any property they may own – or even forced bankruptcy.
Fortunately, there are a number of debt solutions available before things get to this stage.
One solution for those that have a reasonable income is debt consolidation. This involves the acquiring of new debt, with the intention of reducing the amount of monthly payments necessary; a large number of debts are consolidated into just one or two. If this is done correctly, with the new debt having a low interest rate, it is possible that regular repayments will be lower, thus saving the borrower money.
If this option is not possible – perhaps due to the borrower having a poor credit rating – it is possible that professional help may be required with debt relief. A number of debt management companies have come into existence that promise aid in the reduction of debt, and help with debt management is also available from a number of charities and government organisations. Indeed, such free debt advice is generally to be preferred as the organisations offering it will not make any money from charges to the debtor, and so can offer truly independent advice. First contact with these bodies is usually via a free debt helpline: upon calling the borrower can speak with someone trained in helping those in debt.