How To Avoid situation of Over Indebtedness

Difficulty repaying a mortgage or consumer loan, payment of rent or alimony postponed, impossibility of paying certain taxes. Unpaid bills can sometimes accumulate dangerously for the most fragile households and plunge them into a spiral over-indebtedness. Here are our tips to anticipate and avoid this situation. You can get in touch with Best Debt Advice In London.

What is over-indebtedness and what are the causes?

Not a month goes by without you being overdrawn? Do you systematically postpone the payment of your rent or condominium fees? It has become impossible for you to save the smallest amount?

Note that over-indebtedness is more than a temporary difficulty, it is indeed a situation that lasts and settles. The person can no longer cope with his debts and this spiral tends to worsen over the months. The reasons for over-indebtedness? They are mainly of two types:

• Unforeseen events that cause difficulty in paying living expenses and repaying outstanding credits. It can be a dismissal, a divorce, or health problems. So many factors that jeopardize the balance of your budget.
• Overestimating your repayment capacity. This can take different forms: multiplication of credits, non-declaration of all current loans when applying for credit, excessive expenditure in relation to your income and current charges, subscription of new credits to repay the most old.

Is your income no longer sufficient to offset bills, credit maturities and debts? Know that solutions exist .

Rule 1: Assess your financial situation

To avoid over-indebtedness, it is imperative to assess your financial situation objectively. It is indeed essential to have a precise idea of ​​your income and your expenses before applying for a new loan.

But this is not enough ! It is also necessary to regularly check the evolution of your finances, and to establish your budget in a balanced way by planning a sufficient remainder to live. This rigorous management will allow you to know if additional rent is possible with a new loan.

Know that you can estimate your debt ratio in a few clicks thanks to online applications. This will allow you to calculate your repayment capacity. To do this, all you have to do is enter your monthly income (main borrower net income + co-borrower net income), your monthly charges (rent or cost of your mortgage, cost of your car loans and/or consumption).

Rule 2: Obtain the best loan conditions

The idea is not to accept the first loan that comes along but to negotiate your credit under the best conditions to make substantial savings. To do this, you must carefully select the loans to be taken out by informing you about the interest rate. To take out the best loan, it is strongly recommended to have competition between banks or credit organizations and to have simulations carried out.

Warning: taking out several high-cost loans puts you at real risk of over-indebtedness.

Before taking out a loan, also make sure to optimize your borrowing profile (have a stable income, make some savings). This will allow you to demand attractive credit. Otherwise, you will be forced to accept the first offer that is made to you . You can also use the services of a broker who can help you identify the most advantageous offers thanks to his expertise.

Rule 3: Respect the 33% rule

For the majority of people, the use of a loan is a compulsory step to carry out an important project such as the purchase of a car or the purchase of an apartment. However, you need to consider your financial situation. Avoiding over-indebtedness also means taking out only loans that you can repay.

To avoid falling into over-indebtedness, it is therefore advisable to borrow without excess. The ideal is to respect the 33% rule . This means that your debt ratio must not exceed 33%. If you have no other solution than to borrow beyond, try to rectify the situation as soon as possible.

In case of debt, act quickly!

The steps to take in the event of debt are not the subject of this article, however, it is important to bear in mind that solutions exist.

We will therefore limit ourselves to identifying them to allow you to act quickly if you encounter difficulties: from the first payment difficulties, it is essential to refocus on essential expenses:

• accommodation;
• water ;
• electricity ;
• feed ;
• health.

It is also strongly recommended to contact your bank, your creditors in order to request an arrangement for the repayment of your debts. Finally, a measure of common sense: do not accumulate new credits!